[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback] | ||
England and Wales Court of Appeal (Civil Division) Decisions |
||
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Revenue And Customs v Murphy [2022] EWCA Civ 1112 (04 August 2022) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2022/1112.html Cite as: [2022] BTC 25, [2022] STI 1126, [2023] 1 WLR 51, [2023] 1 All ER 504, [2022] EWCA Civ 1112, [2022] STC 1474, [2023] WLR 51, [2022] WLR(D) 349 |
[New search] [Context] [View without highlighting] [Printable PDF version] [View ICLR summary: [2022] WLR(D) 349] [Buy ICLR report: [2023] 1 WLR 51] [Help]
ON APPEAL FROM THE UPPER TRIBUNAL
(TAX AND CHANCERY CHAMBER)
MR JUSTICE MICHAEL GREEN AND
UPPER TRIBUNAL JUDGE GREENBANK
[2021] UKUT 152 (TCC)
Strand, London, WC2A 2LL |
||
B e f o r e :
LORD JUSTICE NEWEY
and
LADY JUSTICE ANDREWS
____________________
THE COMMISSIONERS FOR HER MAJESTY'S REVENUE AND CUSTOMS |
Appellant |
|
- and – |
||
MR KEITH MURPHY |
Respondent |
____________________
Michael Collins (instructed on direct access) for the Respondent
Hearing date: 14 July 2022
____________________
Crown Copyright ©
Lady Justice Andrews:
INTRODUCTION
"62 Earnings
(1) This section explains what is meant by "earnings" in the employment income Parts.
(2) In those Parts "earnings", in relation to an employment, means –
(a) any salary, wages or fee,
(b) any gratuity or other profit or incidental benefit of any kind obtained by the employee if it is money or money's worth, or
(c) anything else that constitutes an emolument of the employment."
"Other than the Agreed Costs, the Parties shall each bear their own legal costs in relation to the Dispute and this agreement."
i) Whether the alleged profit was derived from the employment as required by the definition of general earnings in s.9 (2) of ITEPA (the "from" issue); and
ii) What is the meaning of "profit" in s.62(2)(b); in particular, whether it refers to 'gross' profit or 'net' profit and, if the latter, what items can be taken into account in computing the net profit for these purposes? (the "profit" issue).
They held that the First-tier Tribunal fell into error because the judge only addressed the "from" issue.
i) Ground 1: the Upper Tribunal was wrong to hold that the case law supported a proposition that the focus of the courts in these cases is on whether or not the employee can properly be said to have made an overall or net profit as well as whether a payment is derived "from" the employment;
ii) Ground 2: the UT was wrong to hold that Eagles (Inspector of Taxes) v Levy [1934] 19 TC 23 supported a view that if the taxpayer in that case had received an amount in respect of his costs but had been necessarily obliged to pay the costs in order to receive the settlement sum, he would not have paid tax on the settlement sum to the extent of the amount of the costs;
iii) Ground 3: it was not open to the UT to make a finding of fact that the success fee and insurance premium were liabilities which Mr Murphy 'had to incur' and were 'necessarily incurred' to obtain a payment derived from his employment;
iv) Ground 4: the UT was wrong to hold that it was necessary to consider whether the success fee and the insurance premium should be deducted to determine whether the payment to Mr Murphy of the Principal Settlement Sum amounted to "profit" within s.62(2)(b) ITEPA 2003.
THE STATUTORY FRAMEWORK
"(1) The amount of employment income which is charged to tax under this Part for a particular tax year is as follows:
(2) in the case of general earnings, the amount charged is the net taxable earnings from an employment in the year.
(3) that amount is calculated under section 11 by reference to any taxable earnings from the employment in the year (see section 10(2))."
"(1) For the purposes of this Part the "net taxable earnings" from an employment in a tax year are given by the formula –
TE – DE
where –
TE means the total amount of any taxable earnings from the employment in the tax year, and
DE means the total amount of any deductions allowed from those earnings under provisions listed in section 327(3) to (5) (deductions from earnings; general)."
THE "FROM" TEST
"it is a question to be answered in the light of the particular facts of every case whether or not a particular payment is or is not a profit arising from the employment. Disregarding entirely contracts for full consideration in money or money's worth and personal presents, in my judgment not every payment made by an employer to an employee is necessarily made to him as a profit arising from his employment. Indeed, in my judgment, the authorities show that to be a profit arising from the employment the payment must be made in reference to the services the employee renders by virtue of his office, and it must be something in the nature of a reward for services…" [Emphasis added].
Viscount Simonds went on to state (at p.389) that it was for the Crown to establish that a payment made under the housing agreement was a reward for the employee's services. The addition of the words "as such" added nothing to the proposition. There was nothing express or implicit in the housing agreement which suggested that the payment was a reward for services, other than the employer/employee relationship of the parties, which was not sufficient.
"it is not sufficient to make a payment assessable that an employee would not have received it unless he had been an employee, it is assessable if it has been paid to him in return for acting as or being an employee." [Emphasis added].
"Was this £350 received by Mr Mayes a "profit" from his employment? I think not, for the simple reason that it was not a remuneration or reward or return for his services in any sense of the word." [Emphasis added].
THE CASES ON REIMBURSEMENT OF EXPENSES
a) The payment of the reimbursement may not be treated as earnings at all, as it is not an emolument from employment; alternatively
b) The payment of the reimbursement may be accounted for as earnings, but a deduction may be allowed for the expense under s.334 ITEPA.
".. if the proper test is whether the sum is a reward for services, then, in my view, the travelling allowances paid to Dr Owen are not emoluments. To say that Dr Owen is to that extent "better off" is not to the point. The allowances were used to fill a hole in his emoluments by his expenditure on travel. The allowances were made for the convenience of the employee to allow him to do his work at the hospital from a suitably adjacent area. In my view the travelling allowances were not emoluments."
"it would be a wholly misleading description of an office to say that it had a very large perquisite merely because the holder had to disburse very large sums out of his own pocket and subsequently received a reimbursement or partial reimbursement of those sums. If a school teacher takes children out for a school treat, paying for them out of his (or her) own pocket, and is later wholly or partially reimbursed by the school, nobody would describe him (or her) as enjoying a perquisite. In my view, perquisite has a known normal meaning, namely, a personal advantage, which would not apply to a mere reimbursement of necessary disbursements. There is nothing in the section to give it a different meaning. Indeed the other words of the section confirm the view that some element of personal profit is intended." [p.259B-D.]
WAS THE UPPER TRIBUNAL'S ANALYSIS CORRECT?
"demonstrate that the courts are looking to see whether the employee actually received a profit or benefit over and above the reimbursed expenses in addition to analysing the source of the payment made by the employer".
CONCLUSION
Lord Justice Newey:
Lord Justice Lewison: