Revenue

• Brown v Bullock 1961 3 All ER 129

"The test is not whether the employer imposes the expense but whether the duties do, in the sense that irrespective of what the employer may prescribe, the duties cannot be performed without incurring that particular expense.". guy was supposed to be a member of the social club so he could network and get business. He wasn't permitted to deduct cost because the employer may have told him to do this but not required for his duties

McKnight v Sheppard [1997] STC 846

(stockbroker up to no good, struck off and fined by professional body- incurred legal expenses in appealing this decision • As a question of fact the first tier tribunal, as a matter of fact the entire reason for appealing to be struck off was entirely professional reasons- sole object of incurring legal costs was to avoid the entire destruction of his business- had no personal object. So they allowed the legal expenses for appealing to be deductible The fine he paid was not allowed, criminal or quasi criminal penalties are never deductible-

• Owen v Pook [1970] AC 244- [1962] AC 813

- Expenses incurred were by a doctor. He was on call. His duties started when he was on call when he got the phone call- this meant when he was traveling he was performing his duties. So because he was traveling in the performance of his duties, the expenses were deductible. He was still in his duties on the way home and so also deductible

• IRC v Crossman 1937 AC 26=

- assets in question were shares. Shares were transferred by the donor. There was a provision in these shares that they could not be transferred to the general public-. Common provision in small companies that if disposing of shares you have to offer them to other members of family and other shareholders so shares don't get diluted amongst the public. you have to offer them to other sharejolders or family so the share holding doesn't get diluted. Tax payer argued there is no value because shares do not have a open market value because they had to sell to certain people, other shareholders. The fact there isn't a open market doesn't mean you cant get a market value. Judges said you have to imagine that these shares were sold with their inherit restrictions, what would the open market pay for shares with a inherit restriction (don't ignore the restriction assume it is still there)? You assumed the restriction is part of the asset- what would the open market pay for this asset knowing that the asset has restriction on it.

• *Hall v Lorimer

- considers the factors you have to take into account- bears what risk, entitled to holiday pay, who provides the equipment- it's a question of balance in making the judgement

• Vodafone Cellular Ltd v Shaw [1997] STC 734

- contracted with another company and the contract was with millicon who would provide the know how and technical expertise to Vodafone for ten years for 10% of the annual profits. After 3 years Vodafone realized they could get this cheaper somewhere else. So terminated contract. Breach of contract had to pay a significant amount to milicon for the breach. They were making a payment to get out of an asset (the contract) (astonishly rare, exception to leases, that contracts are capital assets) determined in this case that contract not a capital contract so the payment to get rid of it was not a capital payment. By getting rid of a revenue payment it cant be a capital payment- must be an asset So generally where you are making a payment so you don't have to make anymore revenue payments that itself is a revnue payment- so in this case a payment to stop having to make a deductible expense should be a deductible expense

• Pepper v hart

- statutory interpretation- they looked at ministerial statements. In this case tax payer was a master at private school. Deal was that people who were teachers at the school could get reduced fees for their children. This master paid a amount which the school had figured out to be the extra cost to the school of having one child- HMRC tried to charge the teacher tax on the basis that the benefit he was getting was the average cost of educating a child which was much much higher than the marginal cost of educating one extra child. This all boiled down to statutory interpretation and it appeared by the statement made by the minster that it intended to be the extra cost not the average cost. So the school teacher didn't have any tax to pay on the benefit because he was already paying to the school the equivalent of the extra cost to the school for having that child

• Donald Fisher (Ealing) Ltd v Spencer

- tax payers were tenants of the property and they had a 15 year lease over the property(bingo and snooker hall), this was a capital asset- rent review clause, every five years the land lord would serve a notice saying what they proposed the rent to be over the next 5 years- if the tenant didn't object then the rent would be put up. Estate agent were supposed to give a counter notice to say landords suggestion was too high and so tenants were stuck with this high rent for the next five years. They sought compensation for agent for negligence innot giving a counter notice. They got a lump sum of compensation in damages- was this income or capital? Lease is a capital asset, but they argued that lease had fundamentally risen and so there was damage to their capital asset and they were receiving compensation for the damage thus the sum received should not be subject to income tax because it is a capital reciept. Revenue argued the lease hadn't changed, they just had a higher outgoing for the next 5 years. Court agreed with revenue- they were just paying higher rent, not being paid damages for the assets so subject to income tax

• Wilkins v Rogerson-

- the particular asset was a suit of clothes, cost the employer £14.50. what could employee have sold the suit of clothes for? £5. He was taxed on the £5 because it's what he can convert it for, not the cost to the employer

• (very exceptional case) Van Den Berghs Ltd v Clark

- two rival companies that agreed to work together instead of competing for 38 years, Dutch company and british company. first world war began and contract terminated.. Uk was on winning side so dutch company had to pay compensation for them ending contract because of war. This was held to be part of the profit making structure- contract was providing the structural arrangement in which they would form their business. Contract effected the whole conduct if the business. They formed the means of making profits, they did not themselves make profits. They were not selling margerin, they working together- contract was not a disposal contract but one that arranged how they constructed their business. Formed means of making profit not itself make profit

• HMRC v Banerjee [2010] STC 2318 CA

.- doctor who was on a type of contract, training post that required her to do a certain amount of training- generally it is the case that training expenses are not deductible (they are costs for getting ready to do the job, not in the performance of the job). This was an unusual type of contract- she was required to do a whole lot of training and had related expenses for this training (travel costs, accommodation that she spent money out of her own pocket) HMRC claimed not deductible because not part of the work. First tier tribunal decided that training was a intrinsic part of her work- if she hadn't done the training her employment would have terminated. Majority in court of appeal because this was a training contract, the purpose of the expenditure was in fulfilment of the duties of the contract. Fact that she wanted to get qualification to work her way up the ladder considered incidental purpose, secondary and so does not prevent it being wholly and exclusively. So in this case she was allowed to deduct expenses. This was a very unusual situation, unusual contract

• Nicoll v Austin 1935 19 TC 531

1935 19 TC 531- Company director, employee of the company, he was required to live in a posh house for reason of prestige of the company- So employee lived in this posh house for reasons of prestige that the company wanted to uphold- the company paid this guys electricity bills etc, was he taxable on them? Yes because this was a discharge of an employee's liability • What if the company had contracted with the electricity firm for the house, the contract is between the employer and electricity company- What is the benefit in this case? How do you analyze what they are receiving, answer is free electricity- is free electricity convertible? It is a non-convertible benefit

• Vertigan v Brady

1988 STC 91, (evidence of how long practice has been followed, have to show how long practice has been followed and that it is a accepted practice in the industy) guy employed by plant nursery who had big green houses and lots of spray, they provided free living accommodation to him because it would be handy to have him close by incase the system broke such as the sprinklers and drowned the plants. But he failed in this case to show that it is customary- must lead statistical evidence, need to show how long the practice has been followed and that it has achieved general acceptance.

Abbot v Albion Greyhounds (Salford) Ltd 1945 1 All ER 308.-

Buy grey hounds, race grey hounds, make money, grey hounds after a few years are sold because they don't last long, they get less excitied about chasing a rabbit, and they are no longer valuable (sell them at reduced amount). They want to claim a loss and so They claim these grey hands are part of their trading assets. Court held they are capital assets. Their trade was racing grey hounds NOT trading grey hounds. They were capital assets not trading assets. Grey hands were not part fruit (not trading assets) So no icome tax relief here

Pritchard v Arundale 1972 1 Ch D 229, 47 TC 680

Charted accountant in private practice, company wanted him to go work for them as an employee- he was company chairman for 7 years- he got a bunch of shares for compensation- in this case it was decided that the value of shares represented compensation for giving up private practice (lost clients and have to build it up again). Not payment in advance for working for the company so not taxable.

John Mills Productions Ltd v Mathias Film actor who set up productions. His company contracted with film company for john mills to work exclusively for them for 7 years. Contract was cancelled after two years and film company received compensation for breach of contract- they argued that this contract was so important that it should be a capital asset and so not subject to income tax. Court made an analogy- disposal contracts, contract that disposes of whichever goods or services you provide hwoever important that p[articular contract is its not going to be treated as a capital contract- still just providing services- doesn't change contract into capital asset , It was a contract of services not a contract of a capital asset so compensation was taxable.

Compensation for breach of contract- Almost always treated as a trading receipt- contracts are not usually part of the tree (structure) but part of the goods (way you deliver them His company contracted with film company for john mills to work exclusively for them for 7 years. Contract was cancelled after two years and film company received compensation for breach of contract- they argued that this contract was so important that it should be a capital asset and so not subject to income tax. Court made an analogy- disposal contracts, contract that disposes of whichever goods or services you provide hwoever important that p[articular contract is its not going to be treated as a capital contract- still just providing services- doesn't change contract into capital asset , It was a contract of services not a contract of a capital asset so compensation was taxable.

shilton v Wilmhurst 1991 STC 88.-

If someone is paid to take up employment this is a payment from employment famouse footballer, contracted to knots forest, transferred to south Hampton. £325,00 world class goalie for the world cup. Knots forest wanted rid of him because they couldn't afford him. They paid him £75,000 to go. South Hampton paid £80,000 to come. No question of money paid by south Hampton, accepted to be taxable as inducement to employment, paying to become an employee so accepted to be taxable- just as taxable as wages once you get there. Questionable of the £75,000 paid for him to leave- court of session held this was still an inducement of payment, to take up employment not with yourself but with someone else. Kind of fell in category of a tip, payment not coming from new employer- court said it wasn't a payment as an employee as they had no intention of him working for them. House of lords over ruled this and said this was payment For being or becoming an employee, didn't matter that the payment was not made by the employer. So any payment to induce the change of employementis taxable irrespective of by whom it is made

• Lawson v Johnson Matthey plc [1992] STC 466 (HL) •

Johnson matthey was parent company and one of its subsidiaries was the Johnson matthey bank. The subsidiarie got into series financial difficulties and if the bank went under the parent might go under too. Bank of England stepped in, concerned that Johnson matthey bank went under the rest of the banks in UK would too. Late ight deal where parent and bank of England made an arrangement. Bank of England said they would buy the bank off the parent for £1- sell of the shares in the subsidiarie for a £1. Bank of England only prepared to do this if parent contributed £50 million into the bank. Question then arises- parent wants to deduct the £50,000 as deductible expenditure. It was unsuccessful in high court and court of appeal- both hold this was payment to get rid of a capital asset. This was overturned in the house of lords- indirectly the effect of payment was to get rid of capital asset- but correct legal characterization of the transaction was that the payment was to protect its own trade- getting rid of the bank because it wanted to protect its own trading statement- if it kept the bank it might go under and pull the parent and other down- correct legal characterization was to protect its own trade and as such that wasn't a payment to get rid of a capital asset (this was just one of its effects)

• Mallett v Staveley Coal and Iron Co Ltd [1928]

Mallet case- mining leases, capital asset of mineral leases, paying out regular sums to the owner of the mineral leases but it seemed impossible to extract minerals. So paying rent but not getting profits from getting enough from the ground. So they wanted out of them. So instead they paid the owners of the lease money to terminate the lease. Leases are capital assets. Was payment to get rid a capital asset or revenue? It would improve progits to get rid of it but this isn't the test. Test is what did you get rid off? Here getting rid of a capital asset that is just as much capital assets as acquiring capital asset. Sp held that oayment to get out of this asset was not deductible. A capital to get rid of a asset is the same as a payment to get an asset- so not deductible

• Horton v Young (1971) 47 TC 60 -

Tax payer allowed to deduct travel expenses- self employed brick layer who would travel to different job bases (1 week at a site, another week spent at a different site). He kept all his books at home, administration at home, only possible base to do this was home. He was allowed to deduct because he had to have a base and inevitable that he would travel from this base to place at work at other areas, so it is objectively that every single brick layer in that trade would carry out the travel. His home was his base and travel was wholly and exclusively for purpose of trade thus deductible

• Law Shipping Co Ltd v IRC 1924 SC 74-

Taxpayers bought a ship and it required a significant amount of expenditure in order it to pass the equivalent SHIP test of an MOT. This expenditure was denied on the basis that it was deferred capital

• Holland v Geoghegan-

Taxpayers were bin men- bin lorries were just open sided lorries to chuck the rubbish in. nowadays there is compactors. Before the bin men they had a salvage right that they would get money from whatever they found and salvaged. New lorries stopped this as too dangerous too. A lot of bin men went on strike and employers paid them £450 for going back to work- courts held this was compensation for loss of salivation right and loss of future money- compensation for the change in the rights in the way you do your job

• Jarrold v Boustead 1964 41 TC 701

are you paying them for future services or paying them for something they have lost by becoming an employee? (collateral purpose) rugby union was only played by amateurs(they didn't get paid. Once you had been paid for playing, league you could never play union again because you lost your amateur title. amatuer rugby union player was signed by a rugby league club, paid him for joining. Held that payment was for the permeant loss of amateur title. Wasn't payment for future services but for his loss of amateur title (could never go back and play amateur ever again)

• Rickets v Colquhoun 1926 AC 1-

barrister living in London but also a part time judge in Portsmouth, travel expenses. Refused, not every part time judge in Portsmouth would incur these expenses of traveling from London, only because he lived further away. He also would have failed the in the performance test, wasn't performing his duties in getting there

• Mallalieu v Drummond [1983] STC 665-

barrister who has to wear particular type of clothes in court. She went to court because she tried to deduct the cost of clothes she would wear in court (not wigs and gounds as these are uniform and so would be deductable) she was referring them to ordinary black and white clothes that she claimed she would never wear except when in court at work, never in a private capacity. She argued that the whole and exclusive purpose of buying these clothes is so she could perform the duty as a self- employed barrister. Held this was a conscious motive, you think that's why you buy these clothes but you have subconscious thougths of warmth and decency. The whole and exclusive purpose of buying these clothes is to look appropriate in the court. Judge held that mallalieu had subconscious motives of warmth and decency and so not allowed as not wholly and exclusively • Object of expenditure not limited to conscious motive But purely incidental personal benefit will not disqualify the expenditure:

•EMI Group Electronics Ltd v Coldicott [1997] STC 1372-

bunch of people being dismissed by EMI. Two senior employees and 70 other employees. Cases concerned the two seniors- their contract was different. This said On dismissal EMI could ask them to serve out notice, or as an alternative the company has the right to sack you without notice but must pay you a sum of money that you would get if you had been working during the notice period. Other people didn't have this term in their contract, company just sacked them without notice and gave them payment anyway. Company didn't have the right. Clear for these other employees it wasn't taxable. The term in seniors contract Called a pilon clause- payment in lue of notice. EMI just sacked them without notice and pay the wages they would have received. This was breach of contract, sacked without notice. Payment was breach of contract because other workers were entitled to notice so not taxable because was for unfair dismissal. However the pilon guys, whats the analysis in this case? Payment for breach of contract? no because contract said they had the right to do this, payment under the contract and not for breach of contract and so taxable

• Moore v Griffiths 1972 3 All ER 399.-

captain of England football team. Each member of the winning team got £1000 from football association. HMRC tried to tax it. Decided this would not be taxable- not likely to be recurrent- this was a personal testimonial, not for just doing your job but something entirely exceptional . so they got to keep their £1000 pounds

Able (UK) Ltd v RCC [2007] EWCA Civ 1207-

compensation- taxpayer had land that had a valuable potential to be used as a land fill- water place compulsory purchase order over it- so owner couldn't do anything with the land while this order was sitting over it. Water board decided not to do anything with it after 3 years so gave compensation. Owner had lost the valuable opportunity to use the land for a specific reason, now it had gone- they argued not just loss of profit but loss of a one off chance that they will never get back. Court held that a change in market conditions does not change anything- what you have lost here is temporary use of the land and so an income receipt- don't have a permanent loss- generally loss of temporary is treated as income receipt Permanent loss is treated as a capital receipt

• Heaton v Bell 1970 AC 728

employee Choice of high salary and no car, or lower salary and use of a car. This was held to be convertible, not because he could sell the car because he didn't own it, he was just given the use of the car. But by giving up the car he would have been given cash payment. So this made this benefit convertible. So if it hadn't been the link to his salary it wouldn't have been convertible but it was, by giving up the car he could increase his cash salary, so it made it convertible

• Trustee of earl

if its one off payments then likely to be capital , he gave the right to publish his war diaries in return for half of profits for publication. On face of it looked like a income receipt- but court said one off oppertuiny- was off shot to pyblish diaries- publication of diaries decreased its value thus a capital disposal rather than an income tax activity

•Lucas v Cattell-

in this case it wasn't the case that everyone had a phone line in their house. Employer wanted the employee to get a phone to put in. the employee paid the line rental. He sought to deduct the cost of the line rental from taxable income but failed on the wholly and exclusive ground because he made private phone calls as well. This line rental was not exclusively incurred for performance of work • if there is another purpose for which expense is occurred they are not exclusively incurred in the performance of their duties of employment- anything with a dual purpose will be disqualified

• Tenant v smith-•

in this case the benefit provided was accommodation. Bank guy provided with accommodation which continued to be owned by the employer, the bank. Held that it isn't taxable, employee doesn't own it so cant convert it into money so not taxable What if benefit provided was accommodation benefit- bank continued to own accommodation, was it convertible? No not at all, he didn't own it so couldn't convert it into money This has been overtaken by the benefit code, so no longer good law- good authority as to what is moneys worth

Jackman v Powell [2004] STC 645-

self employed milk man, had to drive to the depot to collect milk and yoghurt (as had to stay in the fridge). Franchise gave him right to trade in 35 streets to work. He would get his own car drive to depot, fill up his float and deliver to houses. He was trying to claim costs of getting from home to depot on the basis that his base was his home (books at home, only allowed to collect milk from depot) most transactions would occur on the streets, not at the depot- so depot was not his base. And he couldn't have a base of 35 streets he argued. However Special commissioner thought couldn't have a base of 35 streets, but higher court held that you could and his work base wasn't home just because he had a few books there didn't matter,. The streets were where he got paid, delivered milk. For Horton and young he had no other place to have as a work base- in this milk man case he had the 35 streets as a base

• Hochstrasser v Mayes 1959 Ch D22-

tax payer had a contract of employment and also a separate contract that said if you have to move to a different city because of your job, and if you have to sell your house at a loss then they will reimburse him. They did. Judge found a collateral purpose- the payment didn't come from employment but a separate contract so fell out of the realms of payment coming from employment

• McClure v Petre [1988] STC 749-

tax payer had land. Building a motorway close by. Builders needed somewhere to dump the soil and so they paid these guys £75,000 to dump the soil on his land. HMRC charged it as generating income from land. Judge said there was only a certain amount of soil that could be dumped on land and by allowing this dumping to take place it was steralising this use of land- couldn't use for more soil, or farming, function of land was used up by the dumping so held to be a disposal of a capital asset- once and for all payment A distinction must be made between profits from the "occupation" of land (s 267) (for example farming) taxed as trading income and "income from land"

• Glenboig Union Fireclay Co Ltd v IRC-

tax payers were a mining company and they had ownership of mineral leases. They didn't own the land under which the mineral rights would be excercised but owned a lease over the mineral rights. They didn't own the earth but had amineral lease to extract minerals from that land. Railway company was going to build a railway over mineral land- they used their statutory rights to sterilise these leases (don't want people digging around under the ground they build on). Payment of compensation has to be made- statute provided the compensation calculated on the estimated loss of profits by not being able to utilise the mining leases. Distinction between what is the nature of payment for and the quantification of the payment made. What is it for? It is for permanent and total loss of a capital asset (the lease). The fact that it was quantified by loss of profits is irrelevant. What was it for loss for capital asset so determined to be capital reciept not subject to income tax payments for loss of profits is taxable as it would be taxed if they had profited but here the payment was for capital asset they just quantified this by loss of profit

• Calvert v Wainwright 1947 KB 526-

taxpayer was a taxi driver- decided tips were taxable. Here expected that remuneration would come from other than just the employer. customary or recurrent payments are taxable. An exceptional gift from someone who is not a employer is not caught eg. If as a soliciter you are tipped £50- not normal in the trade so exempt

Hamblett v Godfrey 1987 STC 60,-

taxpayer worked for GCHQ- invited the employees to sign agrrement that would restrict their rights (didn't give choice to refuse)- eg. Could no longer be part of a trade union or go to a employment tribunal under employment protection legislation. you give up your right to strike and get paid or you resign, that was the choise- was this payment taxable? First teir tribunal held the payment was not made for any services, No payment not made for them acting as a employee or providing services, they were being paid to give up rights. Overturned, Court of appeal held this payment was taxable- 1) they applied the, is there an alternative explanation for payment test(collateral purpose test)? No and also rights given up were so intimately connected to the employment that they had to be from employment (how they behaved as an employees)- clearly relates to the way you behave as an employee

• Odeon Associated Theatres Ltd v Jones [1972]1 All ER 681.- Odean case-

taxpayers bought a run down cinema and spent a lot of money doing it up. In this case the spending was revenue, distinguished from shipping case- no evidence that the purchase price of cinema was significantly reduced, in the ship it was reduced. The cinema was commercially buyable even though it was bit shabby. And thirdly is that in the odean case there was accountancy evidence lead to say that in the accountancy world this would be treated as revenue expenditure Expenditure shortly after acquisition of the asset. Deductible only where asset is viable without expenditure, and purchase price did not reflect the necessity of repairs.

• Chapter 5 catches Casual services that don't amount to trade but smell a bit like them, or ventures in the nature of a profession (eg. On magnificent painting a selling) likely to come under this then income of a profession- this is income not otherwise charged

• Eg. Example of casual services • Bradbury v Arnold (1957) 37 TC 665- Casual commission. Guy got introductory fees if he introduced someone to someone else and the business came from that then he would get paid a fee- not a trade, very casual but smells a bit like it- engaged in service and paid for it so should be taxed on it • fee for guaranteeing a debtor's overdraft Ryall v Hoare (1925) 8 TC 521- shipping dues IRC v Forth Conservancy Board (1931) 16 TC 103- used to charge ships small amount of money to dock, wasn't their trade but amounted to one so taxable- no trade, profession or vocation but still should be taxable • so casual services which do not amount to a trade or profession or "ventures" in the nature of a profession are still taxable.

Mairs v Haughey 1993 STC 569.-

•Change in the terms of redundancy scheme were made. redundancy payment, in the event that someone might be made redundant they would get a reduced payment. Paid compensation- not taxable, redundancy only kicks it ones you stop being an employee- doesn't relate to you being and acting as an employee