The taxpayer companies had paid funds into a trust for employees. They sought to set off the payments against their liability to corporation tax. The revenue argued that they were deductible only in the year in which they were paid to the employees.
Held: The taxpayer’s appeal failed: ‘the whole of the funds were potential emoluments. They could be used to pay emoluments.’ The words ‘with a view to their becoming relevant emoluments’ apply both to the purpose for which amounts are held by an intermediary and also to the purpose for which they are ‘reserved in the account of an employer’. The taxpayer argued that relevant emoluments were contractually or constructively payable, whereas a reserve should properly be made for potential emoluments because they are payable only upon the occurrence of a contingency; for example, a bonus payable if a certain profit is achieved. If that was a correct description of potential emoluments for which a reserve has been made, it would be equally true to say that amounts held by an intermediary were for the payment of emoluments upon a contingency, namely the exercise of a discretion by the trustees. In both cases, the sums in question may or may not be used to pay emoluments but there is at least a realistic possibility that they will be. There may be some unfairness in this, but that unfairness had been confirmed by Parliament.
Lord Hoffmann stated that although a definition may give a word a meaning different from its ordinary meaning, the choice of words by Parliament should not be wholly ignored: ‘If the terms of the definition are ambiguous, the choice of the term to be defined may throw some light on what they mean’.
Lord Hoffmann considered the meaning of the defined term ‘potential emoluments’, said: ‘In the ordinary use of language, the whole of the funds were potential emoluments. It is true that, as Charles J pointed out, ‘potential emoluments’ is a defined expression, and a definition may give the words a different meaning from their ordinary meaning. But that does not mean that the choice of words adopted by Parliament must be wholly ignored. If the terms of the definition are ambiguous, the choice of the term to be defined may throw some light on what they mean.’
Lord Nicholls of Birkenhead, Lord Hoffmann, Lord Hope of Craighead, Lord Scott of Foscote, Lord Walker of Gestingthorpe
[2005] UKHL 47, Times 11-Jul-2005, [2005] STC 1111, [2005] BTC 355, (2003) 77 TC 146, 77 TC 146, [2005] 4 All ER 107, [2005] STI 1235, [2005] Pens LR 395
Bailii, House of Lords
Finance Act 1989 37 43, Income and Corporation Taxes Act 1988 202A 202B
England and Wales
Citing:
At First instance – MacDonald (Inspector of Taxes) v Dextra Accessories Ltd and Others ChD 16-Apr-2003
The inspector sought to disallow charging to current tax period payments made by the employer to an employee benefit trust.
Held: The payments were not made and held by the trustees ‘with a view to becoming relevant emoluments’ within the . .
Appeal from – MacDonald (HM Inspector of Taxes) v Dextra Accessories Ltd and others CA 28-Jan-2004
The company had set up a trust for the benefit of its employees. The Inspector sought to tax the payments made into the trust as ’emoluments’
Held: The appeal was allowed. The payments were ‘potential emoluments’ which were held by the . .
Cited – Heasman v Jordan 1954
Emoluments paid under an office or employment are taxed under Schedule E as income of the year of assessment in which they were earned, and it was irrelevant when they were paid. . .
Special Commissioners – Dextra Accessories Ltd and others v Inspector of Taxes SCIT 25-Jul-2002
SXIT EMPLOYEE BENEFIT TRUST – whether deduction of contributions postponed until taxable as emoluments under FA 1989 s.43(11) – no – whether sub-funds in favour of directors who controlled the company taxable as . .
Cited by:
Cited – Barclays Bank Plc and Another v HM Revenue and Customs CA 11-May-2007
Retired bank employees had previously received free tax advice. When the service was withdrawn, the bank made a payment. The Revenue said that this payment was chargeable to income tax.
Held: The bank’s appeal failed. The payment was made ‘in . .
Cited – Routier and Another v Revenue and Customs ChD 18-Sep-2014
Executors appealed against rejection of their claim that a gift in the will qualified for relief against Inheritance Tax as being a charitable gift. The Trusts concerned assets in Jersey.
Held: The appeal failed: ‘The expression ‘held on trust . .
Cited – Routier and Another v Revenue and Customs CA 16-Sep-2016
Executors appealed against a decision that a residual gift in a will was not charitable and that it was therefore subject to Inheritance Tax arguing that the section if construed in this way was an unlawful restriction on the free movement of . .
Cited – RFC 2012 Plc (Formerly The Rangers Football Club Plc) v Advocate General for Scotland SC 5-Jul-2017
The Court was asked whether an employee’s remuneration is taxable as his or her emoluments or earnings when it is paid to a third party in circumstances in which the employee had no prior entitlement to receive it himself or herself.
Held: The . .
Lists of cited by and citing cases may be incomplete.
Updated: 24 August 2021; Ref: scu.228283 br>