Tax Tribunals

Unclear terminology
A bank manager who had been made redundant at the age of 52 received a lump sum of £42,919 from his former employer. Sections 148 and 188(4), Taxes Act 1988 applied to the payment so that the first £30,000 was exempt from taxation.
However, what was disputed was the availability of a claim for relief from tax in respect of the balance of £12,919 pursuant to Schedule 11 to the Taxes Act 1988, as provided by section 188(6).
Paragraphs 4 to 7 of Part I of Schedule 11 to the Taxes Act 1988 were repealed by the Finance Act 1988, except in relation to those cases where notice is given in accordance with paragraph 12 of Part II of that Schedule. If such a notice is given then Part I of the Schedule, with the insertion of additional paragraphs set out in Part II, applies to provide the relief which the appellant sought.
Paragraph 12, however, provides that such notice can only be given 'where a payment (taxable under section 148) is made in pursuance of an obligation incurred before 10 March 1981'.
In that case the giving of such a notice affords relief from tax corresponding to that available prior to that date.
The appellant contended that the payment he received on 1 August 1995 came within these provisions because his employment commenced before 10 March 1981 and it was always envisaged between him and his employer that in the circumstances that happened, he would receive a payment.
The Special Commissioner, Mr M S Johnson therefore had the task of determining the applicability or otherwise of paragraph 12 in the current case. In order to do this he had to trace the progress of the original legislation. Prior to the Finance Act 1960, payments made at the end of an employment which escaped a charge to tax as an emolument of the employment were not brought into charge to tax at all.
Section 37, Finance Act 1960 was the forerunner to the current legislation contained in sections 148 and 188, Taxes Act 1988. Between 1960 and 1988 'top-slicing' relief was available, but this was abolished by the Finance Act 1988.
Counsel for the Inland Revenue contended that it had not been proved that an 'obligation' dating from prior to 10 March 1981 existed. References were made to Grant v Watton 71 TC 333 regarding 'an obligation incurred by the employer'.
Mr Johnson considered that he was unable to accept the meaning of 'made in pursuance of an obligation incurred before 10 March 1981' put forward by the appellant. If the expression did bear the meaning propounded, then the appellant would have to concede that the payment was taxable as an emolument of his employment. However, that issue did not need to be decided as it had already been agreed that section 148, Taxes Act 1988 applied.
The Special Commissioner again posed the question what does the phrase 'made in pursuance of an obligation incurred before ..' mean. In his view the 1970 and 1988 Taxes Act and the Finance Act 1981 simply adopted and continued the phrase as contained in section 37(6)(a), Finance Act 1960.
What the phrase connoted is payment pursuant to an obligation which would be insufficient to enable one to say that the payment amounted to an emolument of the employment, but which would apart from the exemption attract a charge to tax under the new provisions. It would on one view be unfair for the payments under such obligations to attract tax, seeing that they would have arisen on the basis that the payments were not taxable.
Accordingly the Special Commissioner rejected the appellant's arguments that the circumstances of this case brought it within the ambit of paragraph 12 of Schedule 11 to the Taxes Act 1988. The effect of this was that 'top-slicing' relief was not available to the appellant, because the termination payment received by him from the Royal Bank of Scotland was not made in pursuance of an obligation incurred before 10 March 1981. The appeal was therefore dismissed.
(Lawrence Michael O'Brien (SpC 245).)
A comedy of errors
A case involving an error or mistake claim under section 33, Taxes Management Act 1970 was heard by Mr T H K Everett as Special Commissioner. In this instance the appellant appeared in person, as did the respondent Inspector of Taxes.
The assessment which gave rise to the claim was an estimated capital gains assessment for the year 1989-90 issued on 22 May 1991.
The appellant had engaged two firms of accountants, but it is significant that he appeared before the Commissioner in person. He had sold a restaurant and wine bar to an unconnected party in September 1989, the consideration being partly cash and partly shares.
One of the parcels of shares comprised 45 ordinary shares of £1 each in Flacks Hotels Limited, the value attributed to those shares in the sale contract and agreed between both parties being £77,590.
The first firm of accountants submitted an incorrect capital gains tax computation to the Inland Revenue, but this was not submitted until March 1993. New accountants were then engaged and in March 1995 a claim was effectively submitted stating that the shares in Flacks Hotels became worthless during the year ended 5 April 1990.
No immediate response was received from the Inland Revenue, but a new computation omitted the sum of £77,590 included in the sale contract and showed a chargeable gain of £53,617. Subsequently roll-over relief was claimed under section 152, Taxation of Chargeable Gains Act 1992 and also loss relief under section 24(2) in respect of the worthless shares in the hotel.
Eventually the Inland Revenue replied, accepting an error or mistake claim under section 33, Taxes Management Act 1970 but denying the roll-over relief claim because the shares were not qualifying assets within section 155, Taxation of Chargeable Gains Act 1992. In addition the claim under section 24(2), Taxation of Chargeable Gains Act 1992 was well out of time.
Nothing then happened for eighteen months and the Inspector of Taxes was unable to explain the reason for this. The Revenue then wrote to the taxpayer direct early in 1997 and eventually wrote to his current accountants. The error or mistake relief was agreed with tax repayable of almost £7,700 but the claim under section 24(2) was still unsettled. Following consideration by Technical Division, the Revenue submitted that there could be no question of a late claim and the circumstances did not come within Extra-statutory Concession D28 as that could carry the matter back to 1992-93 but no earlier.
At the end of 1998 the accountants wrote to the Inland Revenue submitting an amended capital gains tax computation for 1989-90, but this not only omitted the value of £77,590 attributed to the Flacks' shares but also the sum of £77,500 paid to the appellant and his wife for the property.
The taxpayer's affairs were then transferred to another tax district.
Before the tribunal, the Inspector appearing for the Inland Revenue accepted that the Flacks shares had become worthless by 1994-95. The Commissioner observed that the condition of a section 33 claim is that it involved a repayment of tax and he was surprised that the appellant appeared not to have paid the tax due under the assessment. As the Revenue had not raised this point, the Commissioner did not pursue it.
The Special Commissioner observed that the Inland Revenue had ignored the appellant's accountants' letter of March 1995 which stated that the Flacks shares had become worthless during the year ended 5 April 1990. Mr Everett accepted that the letter claimed the capital loss but it appeared to him that the letter could be viewed as initiating an error or mistake claim. Therefore his view was that the section 33 claim had been made in time and had not been dealt with by the Inland Revenue.
However, he was doubtful whether this success would assist the taxpayer in reducing his tax liability, because of the error by the accountants in omitting the sum of £77,500 paid for the premises in addition to the exclusion of the £77,590 attributed to the share value. On this basis Mr Everett could find no grounds for interfering with the computation submitted in 1995, accepted by the Inland Revenue and showing a chargeable gain of £53,617, which was itself the result of an error or mistake claim and represented £19,234 at 40 per cent = £7,693.60.
On this basis the appeal was dismissed and the Special Commissioner determined the assessment in the previously agreed figure of £53,617.
(Jonathan Marsden (SpC 246).)
Not allowable
A retired medical practitioner claimed his £80 annual subscription to the General Medical Council as an expense against his civil service pension.
This claim was resisted by the Inland Revenue who instituted a self-assessment enquiry into the 1997-98 tax return.
The case, which was heard by Mr T H K Everett, centred around whether the word 'emoluments' was wide enough to include a pension. The appellant referred to section 131(1), Taxes Act 1988 and a definition in Chambers Twentieth Century Dictionary.
The Revenue pointed out that the doctor's decision to continue to pay his subscription to the General Medical Council was a voluntary decision and was therefore outwith the requirement of section 198, Taxes Act 1988 'to expend money wholly exclusively and necessarily in the performance of those duties'. The Revenue conceded that section 201 was less stringent than section 198 but any deductions permitted were to be 'from the emoluments of any office or employment'.
More references to dictionaries were made by the Special Commissioner, who referred to both the shorter Oxford English Dictionary and Oxford English Reference Dictionary. However, the appeal was doomed and the case was decided in favour of the Inland Revenue.
(Doctor Rudolph B Singh (SpC 250).)

Issue: 3778 / Categories: