Wicks v Firth
| Jurisdiction | England & Wales |
| Judge | THE MASTER OF THE ROLLS,LORD JUSTICE OLIVER,LORD JUSTICE WATKINS |
| Judgment Date | 13 November 1981 |
| Judgment citation (vLex) | [1981] EWCA Civ J1113-1 |
| Docket Number | 81/0436 |
| Court | Court of Appeal (Civil Division) |
| Date | 13 November 1981 |
[1981] EWCA Civ J1113-1
The Master of the Rolls
Lord Justice Oliver &
Lord Justice Watkins
81/0436
1980 No. 75
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL
ON APPEAL FROM
THE HIGH COURT OF JUSTICE
CHANCERY DIVISION (REVENUE PAPER)
MR. JUSTICE GOULDING
Royal Courts of Justice,
MR.D.C.POTTER Q.C. & MR. R. CARNWATH (instructed by The Solicitor of the Inland Revenue, Somerset House, Strand) appeared on behalf of the Appellant (Respondent)
MR. F. HEYWORTH TALBOT Q.C., & MR. G. AARONSON (instructed by V.O. White Esq., Imperial Chemical House, London) appeared on behalf of the Respondents(Appellants)
I.C.I have established an educational trust. It is for the benefit of the sons and daughters of their higher-paid employees. That is, those whose salary is £7,500 a year upwards. I.C.I. have paid into the Trust Fund about £1m. a year. Out of it the Trustees have awarded scholarships for the sons and daughters at the Universities. Their value ranges from £200 to £600 a year, or even more. The awards go to about 2,500 students a year.
Now it is quite clear that the students are not themselves liable for tax on these scholarships. But the Revenue claim that their fathers are liable to tax. The Revenue say that the amount of the scholarship is to be added to the father's income: and that he is to be taxed on it as if it was part of his emoluments. The Revenue say that this follows because the scholarships are confined to students whose fathers are employed by I.C.I. These scholarships, say the Revenue, are 'fringe benefits' which are to be treated, under modern legislation, as if they were part of the income of the employee himself.
Two cases have been brought before the courts to test the position.
Martin Wicks is a student at King's College, Cambridge. His father is in the agricultural division of I.C.I. His home is in Stockton-on-Tees. He is reading for an Honours Degree in Natural Sciences. He applied for a grant from the County of Cleveland, which is their local education authority. The County paid his tuition fees at the University. They also made him a grant of £409 towards his maintenance. They knew that that would not be sufficient for him to manage on. They thought that a student needed £1,100 for his maintenance. But they said that his parents ought to contribute £691 so as to bring his total maintenance up to £1,100.
It was in those circumstances that Martin applied for one of the I.C.I scholarships. He was eligible for it because on his examination results he had obtained a place at the University, and his father was a higher-paid employee of I.C.I. His salary was about £10,000 a year. The Trustees awarded Martin a scholarship of £600 in all, made up of £400 basic award and £200 merit award.
It is that award which gives rise to this case. The Revenue say that the £600 award is to be added to the father's salary and that tax is to be paid by the father on the total. In the assessment on the father, they inserted this addition:
"Benefit—I.C.I. Educational Trust £600."
Christine Johnson is a student at the University of Newcastle-Upon-Tyne. Her father is in the petro-chemicals division of I.C.I. Her home is in Middlesbrough. She is reading medicine, and has done exceptionally well. She too applied for a grant from the local education authority. They paid her tuition fees at the university. They made her a grant of £542 towards her maintenance, but they said that her parents ought to contribute £558 so as to bring her total maintenance up to £1,100. Christine applied for one of the I.C.I. scholarships. The Trustees awarded her £460. This was £260 as a basic award and £200 as a merit award. The Revenue assessed her father on his salary of about £10,000 a year, and added this item:—
"I.C.I. Educational Trust £460."
So the problem is this: The Revenue say that the father is liable to pay tax on the amount of the scholarship as if it were part of his own emoluments. They regard it as a 'fringe benefit' which has become taxable under section 61 of the Finance Act 1976.
BEFORE 1976
Before 1976 each father was chargeable to tax under Schedule E on the 'emoluments therefrom'—that is, the 'emoluments from' his employment. The word 'emolument' covers any advantage which can be turned to pecuniary account. The word 'therefrom' brings in the test of causation. In order that any pecuniary advantage can be taxable in the hands of the employee, the employment has to be the causa causans of the money being received. The payment must be made as a remuneration or reward for his services. It is not sufficient for the employment to be the causa sine qua non. Nor is it sufficient to say that the employee would not have received it unless he had been an employee. Thus, when I.C.I. gave financial assistance to any of their employees who wanted to buy a house or to move house, the employee was held not liable to tax upon the amount. The payment was a housing grant. It was not a reward or return for his services. So he was held not taxable on it, see Hochstrasser v. Mayes (1960) A.C. 376: See especially per Lord Simonds at p.389 and per Lord Radcliffe at p.392.
Thereafter many employers granted 'fringe benefits' to their employees. The employers used them as a means of giving benefits to their employees free of tax. So much so that in 1976 Parliament enacted a comprehensive clause designed to make fringe benefits taxable in the hands of the recipients. They did so by section 61 of the Finance Act 1976, which was in these terms:
"(1) Where in any year a person is employed in director's or higher-paid employment and—
(a) by reason of his employment there is provided for him, or for others being members of his family or household, any benefit to which this section applies; and
(b) the cost of providing the benefit is not (apart from this section) chargeable to tax as his income,
there is to be treated as emoluments of the employment, and accordingly chargeable to income tax under Schedule E, an amount equal to whatever is the cash equivalent of the benefit.
(2) The benefits to which this section applies are living or other accommodation, entertainment, domestic or other services, and other benefits and facilities of whatsoever nature (whether or not similar to any of those mentioned above in this sub-section)…."
I will take the important phrases in order.
"BY REASON OF HIS EMPLOYMENT"
It seems to me that the words 'by reason of' are far wider than the word 'therefrom' in the 1970 Act. They are deliberately designed to close the gap in taxability which was left by the House of Lords in Hochstrasser v. Mayes. The words cover cases where the fact of employment is the causa sine qua non of the fringe benefits, that is, where the employee would not have received fringe benefits unless he had been an employee. The fact of employment must be one of the causes of the benefit being provided, but it need not be the sole cause, or even the dominant cause. It is sufficient if the employment was an operative cause—in the sense that it was a condition of the benefit being granted. In this case the fact of the father being employed by I.C.I was a condition of the student being eligible for an award. There were other conditions also, such as that the student had sufficient educational attainments and had a place at a University. But still, if the father's employment was one of the conditions, that is sufficient. If two students at a university were talking to one another—both of equal attainments in equal need—and the one asked the other "Why do you get this scholarship and not me?" He would say "Because my father is employed by I.C.I." That is enough. The scholarship was provided for the son 'by reason of the father's employment'.
" THE CASH EQUIVALENT OF THE BENEFIT"
This section is designed to overcome the evasion of tax by giving 'fringe benefits'. These fringe benefits are often in kind and not in cash. They may be such as not to be able to be turned to pecuniary account. Nevertheless Parliament intends them to be taxed. It does so by saying that tax is to be charged on "an amount equal to whatever is the cash equivalent of the benefit".
But, if the fringe benefit is in cash and not in kind, then it seems to me that the tax is to be charged on the cash. There is no need to seek for a cash equivalent when the benefit is in cash. So the section should be interpreted as if it read: "and accordingly charged to income tax under Schedule E on the cash (when the benefit is in cash) or on an amount equal to whatever is the cash equivalent of the benefit (when the benefit is in kind)." In short, when the benefit is paid in cash, the cash is itself to be treated as an emolument of the employment. So the 'emolument' here was the actual sum paid in cash to the son. It was paid 'by reason of' the father's employment. So prima facie it is chargeable by section 61 and is taxable as if it was part of the emoluments of the father.
" PROVISION MADE BY HIS EMPLOYER"
Even if I were wrong in thinking that these scholarships were awarded "by reason of the employment" of the father, nevertheless, the statute contains a 'deeming' provision. Section 72(3) says that when a fringe benefit is 'provided by his employer', it is deemed to be 'by reason of his employment'.
In this case the provision of the scholarship was made by the...
To continue reading
Request your trial
- Vermilion Holdings Ltd v Revenue and Customs Commissioners
-
The Commissioners for HM Revenue and Customs v John Charman
...v Eve [1995] STC 18. The FTT erred in distinguishing those two cases, and took the approach advocated by Lord Denning in Wicks v Firth [1982] Ch 355, which is no longer good law: see the decision of the Court of Appeal in Northern Ireland in Mairs v Haughey [1992] STC 495. HMRC’s approach w......
-
Apollo Fuels Ltd and Others
...no benefit: the context in which the car benefit charge appeared made that plain. [35]As Oliver LJ said at [84] ofWicks v Firth (HMIT)TAX[1982] BTC 134, a case concerned with benefits accruing to employees of ICI from an educational trust, "the obvious intention of this legislationis to imp......
-
Wilson (HM Inspector of Taxes) v Clayton
...approach are, to my mind, so appalling that something must be wrong. The situation has been created by the 'cash benefit' decision in Wicks v Firth [[1982] Ch 355]: if that was wrong, cadit quaestio. But on the assumption that it is right, it seems to me that Parliament must have intended M......