[2011] UKFTT 212 (TC)
TC01077
Appeal number
TC/2009/12214
Appeal
against amendment made to Appellant’s tax return as a result of his spending
more than 183 days in the UK because of his son’s serious illness requiring
hospitalisation in the UK-whether-compassionate grounds applied-appeal
dismissed
FIRST-TIER TRIBUNAL
TAX
NICHOLAS
OGDEN Appellant
-
and -
THE
COMMISSIONERS FOR HER MAJESTY’S
REVENUE
AND CUSTOMS Respondents
TRIBUNAL:
S.M.G.RADFORD
A.P.C.HUGHES
Sitting in public at 68 Lombard Street, London EC3V 9LJ on 14 January 2011
The Appellant in person
Mr C.Williams for the
Respondents
© CROWN COPYRIGHT
2011
DECISION
1. This
is an appeal against an amendment made to the Appellant’s self assessment tax
return for the year ending 5 April 2003 following an enquiry into the return.
2. The
return before the amendment was made showed that £94,298.60 of tax was due for
repayment and the amendment resulted in a £224,512.22 increase in the tax due.
The amended self assessment was that tax of £130.213.62 was due.
3. The
Appellant appealed on 27 January 2005 and applied for the payment of the tax to
be postponed.
Background and facts
4. The
Appellant is a Jersey resident and has been since 1988. In early 2002 his son
Richard who was seriously ill was admitted to Papworth Hospital in Cambridge for a heart and lung transplant which was the only option for his survival.
5. The
Appellant was employed by a company called WorldPay, which he had created,
through its Jersey company and did not have any UK bank accounts. In 2001 RBS launched
a hostile takeover bid to acquire WorldPay which the board was forced to accept
in early 2002.
6. In
August 2002 when his son’s health became of great concern the Appellant took
leave from WorldPay to be with his son at the hospital. In order to ascertain
his tax position he telephoned the Cambridge tax office and was told that if he
did not exceed ninety working days whilst in Cambridge his other days would
fall under a compassionate visit dispensation.
7. His
son died on 13 October 2002 and when he returned to work he was fired from his
job for no apparent reason. Under the terms of his contract he had fourteen
days to agree and finalise his termination agreement which was completed and
signed but despite this the Appellant did not receive the agreed payment.
8. His
lawyers subsequently received a phone call from RBS to question the Appellant’s
tax status. RBS insisted that 22% was to be withheld from the payment although
they had no legal right under the termination agreement to do so and the
agreement stated that the Appellant was to be responsible for any tax that
should be due.
9. By
letter dated 16 July 2004 HMRC opened an enquiry into the Appellant’s tax
return based on the information provided to them by RBS. The letter stated that
the enquiry would cover all of the Appellant’s employment income including the
termination payment and that the HMRC would also be looking into the
Appellant’s UK residence. The tax return submitted showed the Appellant as
resident but not ordinarily resident in the UK.
10. At the same time
HMRC wrote to the Appellant’s agent asking for further information concerning
payments received by the Appellant during the relevant tax year.
11. As a result of
the information provided which included details of the Appellant’s days in the
UK which amounted to more than 183 days HMRC reached the conclusion that the
Appellant was resident and ordinarily resident in the UK for the tax year ended
5 April 2003 and closed their enquiry amending his tax return to include all
the income he had received during the year including his termination payment.
12. HMRC stated that
they had considered whether it would be more beneficial to treat the Appellant
as resident but not ordinarily resident in the UK for the relevant year but
that as he had no overseas workdays in that year it would not help.
13. The Appellant’s
agent appealed on the basis that the termination payment was in respect of the
whole of the Appellant’s service with WorldPay and therefore related partly to
duties performed in Jersey and should be apportioned accordingly. They added
that the proposed tax treatment of the termination payment was not consistent
with the treatment which other individuals covered by the termination payment
had received.
14. HMRC replied
that whilst they were sympathetic to the Appellant’s circumstances the law had
to be applied. This was that for the year in question the Appellant was paid
£772,707 in respect of his duties as a director of WorldPay. The duties were
for the year in question when he was resident in the UK. As there were no
overseas duties in that year the payment must have been in respect of duties
performed in the UK where as an executive director of the company the duties
could not be regarded as incidental duties.
15. The agent reiterated
that all the advice given to the Appellant had been on the basis that if the
termination payment was liable to UK tax it would only be in relation to the
proportion of the payment that related to the period when his duties were
performed in the UK. The Appellant’s son had just died when the employment
ceased and therefore if he had continued to work for the ensuing year this work
would have been undertaken in Jersey. The agent stated that it was their
understanding that both foreign emoluments and other earnings for someone who
is resident but not ordinarily resident in the UK where paid for duties of
employment performed outside the UK are only liable to tax when received in the
UK and none of the Appellant’s income was remitted to the UK.
16. A meeting was
held with HMRC on 12 December 2006. HMRC said that in their view there was no
doubt that the salary paid in lieu of notice was contractual. The agent said
that the Appellant would argue that the sums were not paid as a result of a
contractual right but only after the Appellant threatened to sue the company
for breach of his employment agreement. HMRC said that there was an established
principle that such sums took on the nature of the payments that would have
been made under the contract.
17. No agreement was
reached at the meeting and the agent mentioned that he believed there were
Human Rights issues which required investigation. The HMRC officer said that he
would submit the case to his head office for their view. The Appellant asked
that they take into account the wider effect of seeking tax from someone who
had no option but to stay in the UK for compassionate reasons.
18. By letter dated 18 April 2007 Mr Williams of HMRC wrote to the Appellant’s agent to inform the Appellant
that the view of his head office was that the termination payment and the
salary remained liable to UK tax subject possibly to a small reduction for
non-UK duties.
19. The Appellant
did not seem aware of this letter so emailed Mr Williams in January 2008 to
enquire what was happening. Again he stated that he had twice spoken to the Cambridge tax office to clarify the position and been told by them that his actions were
correct and that tax should not have been deducted. He stated that there was
nothing published that stated that compassionate days should be added to worked
days if the total of the compassionate and worked days exceeded 183 days.
The Law
20.
Section 336 of the Income
and Corporation Act 1988 (“ICTA”) states:
Temporary residents in the United Kingdom
(1)A person shall not be charged to income tax under Schedule D as a
person residing in the United Kingdom, in respect of profits or gains received
in respect of possessions or securities out of the United Kingdom, if—
(a)he is in the United Kingdom for some temporary purpose only and not with any view or intent of
establishing his residence there, and
(b)he has not
actually resided in the United Kingdom at one time or several times for a
period equal in the whole to six months in any year of assessment,
but if any such person resides in the United Kingdom for such a period he shall be so chargeable for that year.
(2)For the purposes
of Cases I, II and III of Schedule E, a
person who is in the United Kingdom for some temporary purpose only and not
with the intention of establishing his residence there shall not be treated as
resident in the United Kingdom if he has
not in the aggregate spent at least six months in the United Kingdom in the
year of assessment, but shall be treated as resident there if he has.
21. Section 19 of
ICTA states that tax under Schedule E shall be charged in respect of any office
or employment on emoluments therefrom which fall under one or more of the
following cases:
Case 1 any emoluments
for any year of assessment in which the person holding the office or employment
is resident and ordinarily resident in the United Kingdom, subject however to
section 192 if the emoluments are foreign emoluments (within the meaning of
that section) and to section 193 (1) if in the year of assessment concerned
he performs the duties of the office wholly or partly outside the United
Kingdom
22. Leaflet IR 20
produced by HMRC states at paragraph 1.2:
You will always be
resident if you are here for 183 days or more in the tax year. There are no
exceptions to this.
The Appellant’s Submissions
23. The Appellant
submitted that exceptional circumstances applied in his case. The sole reason
for him having breached the 183 days in the UK rule in the tax year ending 5 April 2003 was due to the ill health of his son Richard. He did not understand why days
spent in the UK for exceptional circumstances including compassionate grounds
were taken into account in considering the 91 day rule but there was no such
provision in respect of the 183 day rule.
24. He had been told
that there was a provision in Jersey tax law that was applied on a
discretionary basis if you exceeded the number of days for compassionate
reasons alone. If you did so the tax authority could make an exception and
ignore the overstay. At the time he asked if it was thought that there was a similar
provision in the UK and was told that there probably was because there was
always a provision for exceptional or compassionate circumstances.
25. At the time he
also phoned the Cambridge tax office to explain his position regarding an
overstay caused solely as a result of his son being in Papworth Hospital. He explained the Jersey provision and was told that it sounded alright, not to worry
and they hoped Richard would get well soon. After he received the amendment to
his tax return he had phoned the Cambridge office again and was given exactly
the same answer.
26. By September
2002 his son’s condition had become desperate so he took compassionate leave
from the company. On returning to work he was dismissed and was angry that he
had been misled into thinking that his job was secure.
27. He submitted
that he did not work in the UK in excess of 90 days, was in the UK solely on compassionate grounds while his son was in hospital receiving treatment not available
in Jersey and had his son not been there he would not have exceeded his UK days.
28. It just so
happened that in that tax year his employment was terminated and he received a
termination payment in addition to his salary. Had it been received in either
the preceding year or the following year neither his normal salary nor his
termination payment would have been subject to UK tax.
29. The duties in
the UK for which he was remunerated fell far short of what his normal duties
would have been had his son not been so seriously ill. The payments he received
were whilst he was effectively on compassionate leave and as such he did not
perform any duties of employment in the UK.
30. He did not
believe that the result arrived at could have been intended by the legislation.
HMRC’s Submissions
31. Mr Williams said
that HMRC had every sympathy with the Appellant’s position however the
intention of Parliament could only be considered when the wording of the
legislation was ambiguous. The wording of Section 336 of ICTA however was
entirely clear and was mandatory.
32. He said that
whilst he had every sympathy with the Appellant in view of the tragic personal
difficulties he had faced the fact remained that he was in the UK for more than 183 days for the tax year ending 5 April 2003. As such the law deemed that he was resident in the UK for tax purposes.
33. HMRC had given
consideration to any exemption that might be due to the Appellant. There were
no exceptions to this law and HMRC had no discretion to create any such
exceptions.
Findings
34. The Tribunal
found that HMRC had correctly issued the amendment to the Appellant’s tax
return. The Tribunal found that the Appellant was resident and ordinarily
resident in the tax year ending 5 April 2003.
35. The Tribunal
found that it was not possible to consider him resident but not ordinarily
resident in the UK for that year as there were no duties performed outside the
UK in that year.
36. The Foreign
Service Exception could not apply to the termination payment which is charged
under Section 19 ICTA and not Section 148 ICTA.
Decision
37. The appeal is
dismissed.
38. This document contains
full findings of fact and reasons for the decision. Any party dissatisfied with
this decision has a right to apply for permission to appeal against it pursuant
to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules
2009. The application must be received by this Tribunal not later than 56
days after this decision is sent to that party. The parties are referred to
“Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)”
which accompanies and forms part of this decision notice.
TRIBUNAL JUDGE
RELEASE DATE: 28 MARCH 2011
