The High Court upheld a decision of the special commissioners that contributions to a funded unapproved retirement benefits scheme (‘FURBS’) in the form of transfers of shares were payments of sums within ICTA 1988, s. 595(1) assessable to Sch. E income tax.

Facts

The taxpayer appealed against an amendment to his self-assessment to income tax for the year 1996–97. The amendment was an increase of £145,051 to the income assessable under Sch. E, reflecting the Revenue's view that a contribution represented by transfers of 16 shareholdings in different quoted companies to a FURBS was to be treated as income of the taxpayer assessable under Sch. E pursuant to ICTA 1988, s. 595 (s. 595 was repealed by the Income Tax (Earnings and Pensions) Act 2003, with effect for income tax purposes from the year 2003–04, but the language of the replacement provision (s. 386 of the 2003 Act) gave rise to the same point as arose in this appeal).

The taxpayer contended that the payments were not within s. 595(1) as that provision applied only to monetary contributions and not contributions in kind. References to ‘pays a sum’ and ‘the sum paid’ in s. 595 were confined to references to payments of money. The Revenue contended that those references should be construed purposively to include references to the transfer of non-monetary consideration, such as the shares in this case, which was capable of valuation in monetary terms. It was argued that Parliament plainly intended by s. 595(1) to tax a contribution of money's worth to a retirement benefits scheme with a view to the provision of relevant benefits to an employee, just as a transfer of money's worth to the employee in consideration of work done was taxable as emoluments of his employment.

The special commissioners decided that it could be inferred from the facts that the shares had been acquired for the purpose of making the contribution, even though not all of the shares were contributed to the FURBS. In the circumstances, the contribution represented by the transfers of shares was to be deemed to be the income of the taxpayer assessable under Sch. E pursuant to s. 595 ((2006) Sp C 526). The taxpayer appealed to the High Court.

Issue

Whether the transfers of the shareholdings constituted the payment of a sum for the purposes of s. 595(1).

Decision

Blackburne J (dismissing the appeal) said that viewed in the overall context of ICTA 1988, Pt. XIV, Ch. I the words ‘pays a sum’ and similar expressions used in s. 595 were not confined to payments in cash. Even though the more usual meaning of ‘pays a sum’ and cognate expressions (‘sum paid’ and ‘payment… made’) was that they referred to a payment in cash, the context might, and in this case did, justify giving the expressions a wider meaning so that they extended to payments otherwise than in cash form, such as the transfer of quoted shares, which were readily realisable in cash.

If s. 595(1) were confined to cash payments, it would be open to the employer to avoid the charge to tax by ensuring that the contribution was otherwise than in cash, of which the present case was a paradigm example. That would make the charge to tax in effect voluntary but Parliament could not have intended that so easy an avoidance of the charge should be available. The force of that point was not sufficiently answered by the argument that, in such circumstances, there would be a charge to tax under s. 596A on all benefits coming out so that the issue was merely one of timing.

Further, as the taxpayer had accepted, the expression ‘sum paid’ in s. 592(4) extended to non-cash transfers. Although it was true that s. 592(4) was concerned with deductibility, it would be odd if Parliament had intended, in the space of three sections within the same Chapter, different meanings for the same expression. Moreover, if the words ‘sum paid’ in s. 595(1) were confined to cash, but in s. 592(4) extended to non-cash contributions, the odd consequence would be that, by force of FA 1989, s. 76(1) and (3), the employer could deduct for the cash contribution to the scheme but, unless otherwise deductible, could not do so for the non-cash contribution.

It followed that the special commissioners had reached the correct conclusion.

Chancery Division.
Judgment delivered 8 February 2007.