Venables v Hornby (Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judge | Lord Justice Chadwick,Lord Justice Potter,Lord Justice Peter Gibson |
| Judgment Date | 18 September 2002 |
| Neutral Citation | [2002] EWCA Civ 1277 |
| Docket Number | Case No: 2001/1575 |
| Court | Court of Appeal (Civil Division) |
| Date | 18 September 2002 |
[2002] EWCA Civ 1277
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CHANCERY DIVISION
(Mr Justice Lawrence Collins)
Royal Courts of Justice
Strand,
London, WC2A 2LL
Lord Justice Peter Gibson
Lord Justice Potter and
Lord Justice Chadwick
Case No: 2001/1575
Mr C McDonnell (instructed by Messrs Warner & Richardson, Winchester for the Respondents)
Mr T Brennan QC (instructed by the Solicitor of Inland Revenue for the Appellant)
This is an appeal from an order made on 14 June 2001 by Mr Justice Lawrence Collins allowing appeals under section 56A(1) of the Taxes Management Act 1970 by the taxpayers, Mr David John Venables and the trustees of the Fussell Pension Scheme, against the decision of the Special Commissioners given on 13 November 2000. The commissioner (Mr Malachy Cornwell-Kelly, sitting alone) had upheld an assessment on Mr Venables to income tax under Schedule E made on 5 March 1997. The assessment was made under section 600 of the Income and Corporation Taxes Act 1988 in respect of three payments made to Mr Venables in the year of assessment 1994/95 out of funds held for the purposes of the pension scheme. The commissioner upheld, also, a related determination of tax payable made against the trustees of the scheme under regulation 49 of the Income Tax (Employments) Regulations 1993 (SI 1993/744) on 1 March 1999. It has been common ground that the assessment and the determination stand or fall together.
Section 600 of the 1988 Act, as amended by the Finance Act 1989, is in these terms, so far as material:
"(1) This section applies to any payment to or for the benefit of an employee, otherwise than in course of payment of a pension, being a payment made out of funds which are held for the purposes of a scheme which is approved for the purposes of—… (b) Chapter II of Part II of the Finance Act 1970; …
(2) If the payment is not expressly authorised by the rules of the scheme … the employee … shall be chargeable to tax on the amount of the payment under Schedule E for the year of assessment in which the payment is made."
In that context "employee", in relation to a company, includes "any officer of the company, any director of the company and any other person taking part in the management of the affairs of the company"—see section 612(1) of the 1988 Act.
It is not in dispute (i) that payments of funds held for the purposes of the Fussell Pension Scheme were made to Mr Venables in July and August 1994, or (ii) that, at the time when the payments were made, Mr Venables was a director of Ven Holdings Limited, one of the participating employers under the scheme. The principal issue raised by the appeal is whether the payments were "expressly authorised by the rules of the scheme". A secondary issue is whether, if not authorised by the scheme, the payments—which, it is said, were (on that hypothesis) held by Mr Venables on trust from the moment that he received them—should be treated for tax purposes as if they had not been made. It is common ground that, if the payments were not authorised, it must follow that (unless they are to be treated as not having been made or, at least, not having been made 'out of' scheme funds) Mr Venables was chargeable to tax on the amount of the payments under the provisions of section 600 of the 1988 Act and a determination under regulation 49 of the 1993 Regulations was properly made against the trustees in respect of basic rate tax deductible from those payments.
The Fussell Pension Scheme was established by a trust deed dated 25 September 1980. Its purpose was described in the deed as the provision of "relevant benefits as defined in Section 26(1) of the Finance Act 1970" for directors and employees of the companies who were to be or become participating employers. The benefits payable under the scheme are set out in schedule F to the deed. Paragraph 2 in schedule F provides that:
"With the consent of the Founder the Trustees have discretion to award an immediate pension to a Member who retires in normal health at or after age 50…."
It was in the exercise, or purported exercise of that power that payments totalling £580,591 were made to Mr Venables out of the funds subject to the scheme.
The underlying facts
The underlying facts are conveniently set out the following paragraphs of a statement of agreed facts put before the special commissioner:
"8. On 26 th May 1989 the terms of the Trust Deed were amended so that thereafter Ven Holdings Limited was treated as the Founder of the Scheme in place of Fussell Estates Limited. With effect from that date the participating employers under the Scheme were (1) Ven Holdings Limited ("the Company") and (2) Fussell Management Limited. With effect from 1st April 1993 the trustees of the Scheme were (1) David John Venables and (2) Denton & Co Trustees Limited.
9. At all material times Mr Venables held approximately 20% of the shares in the Company. The Family Discretionary Trust, of which Mr Venables was settlor and a trustee, held the remaining 80% of the shares in the Company.
10. On 23rd June 1994 a Board meeting of the Company took place at which it was resolved:
'that D.J. Venables will be retiring as an executive director on 30th June 1994 to pursue other interests but will continue as an unpaid non-executive director. L. G. Singleton is to be elected to serve as managing Director for a trial period of six months with Miss P.J. Venables appointed as Company Secretary.'
11. In a letter of 23rd June 1994 to Denton & Co. Mr Venables said that he would be retiring from service as managing director of the Company on 30th June 1994.
12. Mr Venables remained as a director of the Company at all relevant times during 1994/95 and continued as a director after 5th April 1995.
13. The Scheme paid to Mr Venables £580,591 as follows :—
| 7th July 1994 | £225,000 |
| 18th July 1994 | £250,000 |
| 4th August 1994 | £105,591" |
I should add (a) that, as at 30 June 1994, Mr Venables was 53 years of age and (b) that, as the special commissioner found, Mr Venables had not, himself, ever been appointed as managing director of the company. The position is described by the special commissioner in paragraph 4 of his decision:
"Mr Venables was a carpenter by trade and in the early days had worked on the sites, though he has not done so for many years. Overall, Mr Venables worked in Ven Holdings for upwards of thirty years, and had for some time been an executive director and the chairman of the company, in which capacity he worked about 30 hours a week. On 31 March 1993, the group's managing director retired and Mr Venables's workload increased so that he then worked nearly 50 hours a week. Before that, he had been occupied for the most part in making strategic decisions for the activities of the group, but now he became responsible for its day to day running, arranging the finances, costing work and recruiting staff."
The principal issue: were the payments authorised?
The principal issue turns on the meaning to be given to the word "retires" in that paragraph. The question before the special commissioner was whether Mr Venables had "retired in normal health" for the purposes of the scheme when, on 30 June 1994, he ceased to have an executive role in Ven Holdings Limited; notwithstanding that he continued thereafter to be a director of that company. The special commissioner held that Mr Venables did retire on 30 June 1994; but that, because he was not then in normal health, the power to pay an immediate pension under paragraph 2 in schedule F was not exercisable. It is a curious feature of the scheme—although nothing now turns on it—that the power to pay a pension on early retirement, conferred by paragraph 2 of schedule F, is not exercisable unless the member is in normal health on retirement; rather than, as might be expected, being exercisable if the member retires by reason of ill-health.
The judge agreed with the conclusion that Mr Venables had retired—or, at the least, accepted that it was a conclusion of fact which the special commissioner had been entitled to reach—but reversed his finding that Mr Venables was not then in normal health. He thought that that was a finding which could not reasonably be made on the evidence. The Revenue have not sought to challenge the judge's conclusion on that point. The only question for this Court, in relation to the principal issue, is whether Mr Venables "retired" on 30 June 1994.
Although treated by the judge as "a matter of fact and degree", it seems to me that the question whether or not Mr Venables "retired" on 30 June 1994 turns on a short point of construction: does a member of the scheme who is a director of an employer company with an executive role "retire" for the purposes of paragraph 2 of schedule F when he gives up his executive role but continues in office as a director? In order to explain why I take that view it is necessary to describe the relevant provisions of the scheme and to set them in the context of the legislation which provided the tax benefits which the scheme was intended to enjoy.
The legislative setting
It is not in dispute that those who established the scheme under the trust deed of 25 November 1980 must be taken to have intended that it would be approved by the Inland Revenue for the purposes of Chapter II in Part II of the Finance Act 1970. If confirmation of that be needed it can be found in paragraph 2 of schedule F itself, which limits the amount of pension which can be paid under the power which it confers to a amount "in no case greater than an amount which...
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