TC03767: Gillian Rockall; Michael Rockall
| Jurisdiction | UK Non-devolved |
| Judgment Date | 01 July 2014 |
| Neutral Citation | [2014] UKFTT 643 (TC) |
| Date | 01 July 2014 |
| Court | First Tier Tribunal (Tax Chamber) |
[2014] UKFTT 643 (TC)
Judge John Brooks, Anthony Hughes
Keith Senior of Jacobs Allen Chartered Accountants appeared for the Appellant
Anthony Wallace, of HM Revenue and Customs, appeared for the Respondents
Income tax - Use of company assets by directors - Whether "benefit" under Income Tax (Earnings and Pensions) Act 2003 ("ITEPA 2003"), Income Tax (Earnings and Pensions) Act 2003 section 201s. 201 - If so whether entitlement to deduction under ITEPA 2003, Income Tax (Earnings and Pensions) Act 2003 section 365s. 365 - Whether "discovery" within Taxes Management Act 1970 ("TMA 1970"), Taxes Management Act 1970 section 29s. 29 - Appeal allowed in part.
The First-tier Tribunal (FTT) allowed the taxpayers' appeals in part: although the assets in question gave rise to a "benefit" under ITEPA 2003, Income Tax (Earnings and Pensions) Act 2003 section 201s. 201, deductions were to be given in respect of one of those assets under Income Tax (Earnings and Pensions) Act 2003 section 365s. 365. The assessments for the several years in question were validly made in accordance with the requirements in TMA 1970, Taxes Management Act 1970 section 29s. 29.
The taxpayers, Mr and Mrs Rockall (MR and GR) appealed against income tax assessments for 2000-01 to 2008-09. The assessments related to the use of assets owned by two companies (M Ltd and WH Ltd) of which MR and GR were directors and jointly controlling shareholders. The assets comprised an ocean-going yacht, jewellery and antique clocks.
MR had established M Ltd in 1983, the company providing residential conference and training facilities from a converted property in Leicestershire to large corporate clients. In 1986 MR suffered health problems, and had had to reduce his involvement with M Ltd which was then placed under alternative management.
From 1999, WH Ltd operated a hotel and conference centre from a property in Northamptonshire, adjacent to Silverstone race track. This business became closely associated with Formula 1 racing and a significant part of its business came from Formula 1 teams and manufacturers using the hotel around the time of the British Grand Prix.
In 2001, M Ltd acquired a yacht at a cost of some US$12m. This replaced another yacht which had been used by the directors to develop business opportunities for developments along the coast of Southern Europe, for chartering, and also as an annual London marketing base for the two companies' hotel/conference businesses in the Midlands. The new yacht was available for charter, and while MR managed the yacht for M Ltd, it used third party brokers to obtain charter business.
The yacht was chartered by WH Ltd over various periods from 2001 to 2007. She was also used by MR and GR for short periods during 2005 and 2006, either in the Caribbean or the Mediterranean. This was to explore potential business projects, and also included attendance for the Monaco Grand Prix. On two occasions, in order to obtain further advice and expert opinion on the projects, certain individuals who were also described as "friends", joined MR and GR on the yacht.
The yacht brought in a significant amount of income from chartering, as well as indirectly raising income from business secured for WH Ltd and M Ltd.
The clients using WH Ltd's Northampton facilities were high net worth individuals. In order to convey the right image amongst such clients, WH Ltd purchased over several years a small number of items of jewellery, at a total cost in excess of £200,000, to be worn by GR and the Rockalls' daughter at "need to impress" occasions such as British Grand Prix dinners, a charity ball and other fund raisers. Other than on these occasions the jewellery was not used, and was kept in a safe at WH Ltd's hotel premises.
WH Ltd also purchased two antique clocks, at a cost of over £500,000, in 2004. This was in connection with an idea for the development of a new hotel and exhibition space at Silverstone, and to name the suites in the new hotel after various premium clockmakers. This project did not happen, and the clocks were stored initially at WH Ltd's existing hotel before being moved to MR and GR's home address, where kept in MR's business office there.
In July 2007, HMRC (Special Investigations) commenced an enquiry into M Ltd, WH Ltd and MR/GR under COP 8, in relation to "benefits" to the directors arising in respect of the yachts and jewellery. As part of the enquiry HMRC raised how improvements to MR/GR's private residence had been funded, and an accounting error in that respect led to a voluntary disclosure being made. This in turn led HMRC to register its enquiries under COP 9, leading to an accountants' report prepared in 2009 which disclosed incorrect treatment of the antique clocks as plant, as well as referring to the disputed benefits in kind (on yachts/jewellery). In September 2010, HMRC issued assessments on benefits in kind for years 2000-01 to 2008-09, and a further assessment in October 2010 for year 2005-06 in respect of the clocks.
The Tribunal said there were three issues:
(2) whether benefits chargeable to income tax under ITEPA 2003, Income Tax (Earnings and Pensions) Act 2003 section 201s. 201 arose in respect of the yacht, jewellery and clocks;
(3) if so, whether a deduction under ITEPA 2003, Income Tax (Earnings and Pensions) Act 2003 section 365s. 365 could be claimed;
(4) whether HMRC entitled to issue 'discovery' assessments in respect of years prior to 2006-07.
On (1), the Tribunal said that, given the very wide definition of "benefit" in the legislation, it must follow that use of the yacht, jewellery and clocks by MR and GR were to be treated as such. An asset is placed at the employee's disposal for his use (within Income Tax (Earnings and Pensions) Act 2003 section 205 subsec-or-para 1s. 205(1)(a)(i)), irrespective of whether that use is private and personal or in furtherance of the business of his employer (and the Tribunal said it had been satisfied on the evidence that use of the various assets in question had indeed been for business, not private, purposes). In principle therefore, but subject to the availability of a deduction under s. 365, MR and GR were chargeable to income tax on the benefits received.
On (2), the Tribunal said that it considered that if MR and GR had paid the cost of the benefit they received in respect of the yacht, it would have been incurred as an obligation of their employment, and wholly, exclusively and necessarily in the performance of their duties (meeting the further conditions in Income Tax (Earnings and Pensions) Act 2003 section 336s. 336). It was not able to conclude the same in respect of the jewellery and clocks, and even if it had found that MR and GR had been obliged to incur expenditure on these items, such payment would not have been incurred in the performance of duties but rather to put them in a position to better perform those duties. Accordingly, a deduction under Income Tax (Earnings and Pensions) Act 2003 section 365s. 365 should be allowed in respect of the yacht, but not the jewellery or clocks.
On (3), the Tribunal said that HMRC were entitled to issue discovery assessments for years before 2006-07 on the basis of the careless accounting error of the work undertaken on MR/GR's residence (which meant the condition in TMA 1970, Taxes Management Act 1970 section 29 subsec-or-para 4s. 29(4) was satisfied).
The taxpayers' appeal therefore succeeded in part.
The "cost of the benefit" in this case fell to be determined under ITEPA 2003, Income Tax (Earnings and Pensions) Act 2003 section 205s. 205, rather than under the "basic rule" in Income Tax (Earnings and Pensions) Act 2003 section 204s. 204. A key element in the Tribunal's decision was its interpretation of the words (in s. 205) "placed at the disposal of the employee, for the employee's use". It noted also that s. 205 contains no apportionment provision corresponding to that in s. 204.
[1]Mrs Gillian Rockall and Mr Michael Rockall appeal against income tax assessments for 2000-01 to 2008-09 inclusive. Although the assessments originally included other matters these were withdrawn by HM Revenue and Customs ("HMRC") leaving outstanding those assessment made in relation to Mr and Mrs Rockall's use of assets owned by two companies of which they were the directors and jointly controlled, Whittlebury Hall Limited ("WHL"), formerly known as Macepark (Whittlebury) Limited, and Macepark Limited ("ML"). The assets concerned consist of an ocean going yacht, owned by ML, jewellery owned by WHL and antique clocks also owned by WHL.
[2]Mr and Mrs Rockall were represented by Mr Keith Senior of Jacobs Allen Chartered Accountants and HMRC by its presenting officer, Mr Anthony Wallace.
[3]In addition to several bundles of documentary evidence from each of the parties we were provided with the following witness statements on behalf of the appellants:
(2) Mrs Rockall;
(3) Mr Rockall;
(4) Peter Harrup of BDO LLP regarding the long case antique clock;
(5) Jason Hill a chartered surveyor employed by WHL and ML in relation to the business and assets of the companies in particular the Masquerade of Sole;
(6) Vincent Titchmarsh, who had travelled on the Masquerade of Sole and whose evidence was in respect of the yacht and business activities of the companies;
(7) Captain Colin Boyle, Master of the Masquerade of Sole;
(8) Dr Peter Schofield and Dr Anne Price, who are husband and wife and who travelled on the Masquerade of Sole in the Caribbean during 2006;
(9) Michael White, a yacht broker and charterer, of Cavendish White Limited who acted as the Masquerade of Sole charter marketing agents;
(10) Anna Maria Cioffi, who was Mr Rockall's former personal assistant in relation to the use of the Masquerade of Sole;
(11) Paolo Conteddu in relation to the use of the Masquerade of Sole in connection with a project in...
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