European Court of Human Rights

Burden & Anor v UK (Application No. 13378/05)

Inheritance tax exemptions – spouses and civil partners v unmarried siblings

In this European Court of Human Rights case, two unmarried sisters had lived together all their lives in a house built on land inherited from their parents, which was owned in joint names. Each sister made a will leaving all her property to the other. The value of the property had increased to such an extent that it was above the current inheritance tax exemption threshold.

The key issue here was whether there was a violation of the taxpayers’ rights under the European Convention on Human Rights as it was their view that their situation was analogous to civil partners and domestic law did not afford them the inheritance tax exemption available to spouses and civil partners.

It was decided that the taxpayers’ complaint was admissible. However, it was decided that there had been no violation of human rights as the UK had to strike a balance between raising revenue and pursuing social objectives, and the difference in treatment for the purposes of granting inheritance tax exemptions was reasonably and objectively justified for the purpose of the relevant article of the Convention.

This should not arise in Ireland because of the dwelling house exemption in Irish Capital Acquisitions Tax legislation.

For further details, see page 28.

Uk High Court

R (on application of Cook) v General Commissioners of Income & Anor

Administration – Time limit for making an appeal

The taxpayer set up a new business but failed to make PAYE and NIC payments on behalf of his employees. The Revenue subsequently issued determinations in respect of the outstanding payments. The taxpayer did not appeal those assessments within the 30-day time-limit, but sought to appeal against the assessments out of time. The tax inspector refused on the basis that there was no reasonable excuse for the delay.

The Commissioners dismissed the taxpayer's application on the basis of reasonable excuse. The High Court held that the Commissioners had exercised their jurisdiction improperly in applying a reasonable excuse test – the reasonable excuse legislation applies to the tax inspector only. The Commissioners should have considered the merits of the case.

In the equivalent Irish legislation, the reasonable cause applies to the inspector or other officer. On the basis that a Special Commissioner would not be treated as another officer, this decision may have relevance for Ireland.

For further details, see page 29.

R (on application of Cooke) v R & C Commrs [2007] EWHC 81 (Admin)

Revenue Powers

This case considers HMRC's powers to require the production of documents from a barrister, advocate or solicitor. In general, notice can be given to a taxpayer by a tax inspector provided various conditions are met. However, under separate legislative provision, notice may only be given to a barrister, advocate or solicitor by the Board.

The claimant was a solicitor who acted for a taxpayer in relation to his tax affairs. He was issued with a notice requiring him to deliver, or make available for inspection, certain specified documents.

The key issue was whether the various other conditions that must in general be met, must also be met when the notice is issued to a barrister, advocate or solicitor. On the basis that a ‘high-level administrative’ decision was required for the exercise of the power to issue a notice to a barrister, advocate or solicitor, it was concluded that the Revenue were not obliged to meet the various conditions, when issuing a notice requiring documents in this case.

Irish legislation does not distinguish between powers to require production of documents from barristers etc and others, so this case does not have relevance for Ireland.

For further details, see page 30.

Hudson Contract Services Ltd v R & C Commrs [2007] EWHC 73 (Ch)

Construction Industry – sub-contracting

This case is concerned with subcontracting within the construction sector. The taxpayer was a contractor of hired-in labour, which was interposed between its clients and the operatives. There was no written contract between the client and the operative.

The taxpayer applied for a renewal of its Construction Industry Scheme Certificate. The application was refused on the basis that the taxpayer's business did not consist of or include the furnishing or arranging for the furnishing of labour in carrying out construction operations. The key issue in the decision by the Revenue to refuse the application was that the taxpayer had minimal contact with the operatives – operatives approach the clients directly, any negotiations on the terms are between the operative and the client, and so, in effect it is not furnishing or arranging the furnishing of labour.

The Special Commissioners concluded that the taxpayer was furnishing labour and the High Court concurred with this decision. The decision was based on an analysis of the contractual nexus between the parties. While contracts were unusual and directed at meeting the legislative provisions in relation to CIS, it had to be accepted unless the contracts were found to be a sham which was not considered in this case.

Irish tax legislation on relevant contracts tax contains similar provisions to the furnishing of labour and hence the analysis around the contracts may prove useful in an Irish context.

For further details, see page 31.

Tumble Tots UK Ltd v R & C Commrs [2007] EWHC 103 (Ch)

VAT – several supplies of goods or a single supply of membership

In this case, the taxpayer was the franchisor of an activity programme for pre-school children. Parents were to pay up to £8.50 per session and, to be eligible to attend, the child was required to enroll as a member of the Tumble Tots Club. In exchange for a membership fee of £19, the taxpayer provided a number of benefits including a T-shirt, DVD, CD, gym bag, handbook, membership card, personal accident insurance and six issues of a magazine.

The key decision was whether the supplies made by the taxpayer on receipt of the membership fee were several supplies of goods or a single supply of membership. It was held that the supply was a single supply of membership.

The key issue in the decision was that the main purpose of the payment of the £19 fee was to make the child eligible for attendance at classes and that was achieved by conferring on the child the status of membership of the club. The other supplies were considered as ancillary.

For further details, see page 32.

C & E Commrs v Total Network SL [2007] EWHC Civ 39

VAT – carousel fraud

In this case, the defendant, a Spanish company, was involved in the sale of mobile phones from Spain to the UK through a chain of transactions. Customs alleged that the defendant was part of a conspiracy to cheat the public revenue in the UK by a series of 13 alleged ‘carousel’ or ‘missing trader’ frauds in relation to the sale of the mobile phones.

It was held that the Court was bound by the decision in Powell v Boldaz [1998] L1 Rep Med 116 and hence, in the circumstances, Customs were not entitled to bring an action alleging conspiracy to cheat the public revenue against the Spanish company.

In the Powell v Boldaz case, the Court of Appeal had held that the unlawful act relied upon must be actionable at the suit of the plaintiff. It was not sufficient that it amounted to a crime or breach of contract with a third party. Hence, in this decision, the Court was bound by the Powell decision to hold that an unlawful act actionable at the suit of the claimant against at least one conspirator was a necessary ingredient of unlawful means conspiracy. For further details, see page 33.

Touchwood Services Ltd v R & C Commrs [2007] EWHC 105 (Ch)

VAT – appealable decision

In this case, the taxpayer had submitted a claim for a repayment of input tax of £715,198. Customs notified a repayment assessment of £152,415 but did not refund £562,782. Customs informed the taxpayer that they were still verifying the claim.

The taxpayer sought to appeal on the grounds that the repayment of £152,415 had been a decision. It was held by the Court that Customs had not made an appealable decision.

The decision in this case is a strict interpretation of the legislative provisions. The reason for the strict interpretation is that the taxpayer had an alternative remedy in the form of a judicial review where there is a delay in making an assessment.

For further details, see page 34.

Monro v R & C Commrs [2007] EWHC 114 (Ch)

Capital Gains Tax – repayment where mistake of law

This case concerns an unfortunate taxpayer who paid £846,000 more in tax than he should have and his unsuccessful endeavours to seek repayment of the tax.

The taxpayer had received options in shares which he exercised within two days. One year later he sold the majority of those shares. He included the exercise of the options in his income tax return in the relevant year and the disposal of the shares in the next year's return. He based his calculation of the gain on the position pre Mansworth (HMIT) v Jelley [2003] BTC 3, i.e. the cost of the shares disposed was taken to be the value of the shares for the purposes of determining the tax due in the exercise of the option. Mansworth v Jelley held that the amount which could be deducted in the calculation of the gain should also be the market value of the shares sold as at the date of their acquisition.

The nature of his claim was a restitutionary claim for the repayment of tax paid by him pursuant to a mistake of law or as tax paid pursuant to an unlawful demand being tax collected which was not lawfully due.

As the return had been submitted on time, the legislative provisions of the Taxes Management Act 1970 apply and hence no relief was given because the liability had been based on the practice generally prevailing at the time when the return was made – the Mansworth v Jelley case occurred after this time.

Section 865 TCA 1997 is the equivalent Irish legislative provision.

For further details, see page 35.

Jasmine Trustees Ltd & Ors v Wells & Hind (a firm) & Anor [2007] EWHC 38 (Ch)

Trusts – meaning of ‘individuals'

This High Court case centres around the meaning of the word ‘individuals’ in the UK Trustee Act 1925.

It was held that ‘individuals’ meant natural persons and did not include corporations for the purposes of the Trustees Act 1925. This decision was made on the basis of the use of word ‘individual’ and the word ‘persons’. The word ‘person’ or ‘persons’ was used a large number of times, and the word corporation was used as well. That suggested a deliberate use of the word ‘individuals’ to mean something different from persons.

The decision resulted in a husband and wife who were resident in the UK being subject to capital gains tax on disposals by a discretionary trust. When the trust was established, they acted as trustees. Prior to any trust activity, they had appointed a non-resident individual and a non-resident company to replace them as trustees. This was done so that any disposals by the trust would not be subject to CGT However on the basis of the High Court decision, they were treated as remaining as trustees and hence, as resident trustees, were subject to CGT.

The discussion on the meaning of the word ‘individual’ in this case may be helpful for Irish tax purposes. Section 18(c) of the Interpretation Act 2005 may also be useful.

For further details, see page 37.

R & C Commrs v Wright

Self employed v employed

The taxpayer carried on the business of supplying workers to main contractors. The issue was whether the workers engaged by the taxpayer were engaged under contracts of service or contracts for service. The Special Commissioners had concluded that the contract was one for service and hence the workers were not employees. The Revenue appealed to the High Court.

The High Court allowed the appeal on the basis that the taxpayer exercised sufficient control over the workers which resulted in a contract of service.

The following points are worth noting:

• Mutuality of obligation determined whether a contract existed at all.
• Control determined if a contract could be classified as a contract of service.
• The fact that control on site was delegated was not necessarily indicative of a contract for service.
• The key question was who in reality had the power to control what the worker did and how he did it.
• The absence of a formal contract did not preclude the existence of a contract of employment.

As this is a question that occurs frequently in Ireland, the decision may be useful from an Irish perspective also.

For further details, see page 38.

D'arcy v R & C Commrs

Accrued income scheme

• “... this is in my view one of those cases, which will inevitably occur from time to time in a tax system as complicated as ours, where a well-advised taxpayer has been able to take advantage of an unintended gap left by the interaction between two different sets of statutory provisions.” – Henderson J.

The taxpayer entered into a tax avoidance scheme involving a series of transactions in gilts designed to create a tax deduction for a manufactured interest payment. While she was entitled to a tax deduction for the manufactured interest payment, Revenue tried to use the accrued income scheme to counterbalance the deduction.

The construction of the accrued income scheme was that no charge would arise if the transferor is an individual and on no day in the year of assessment in which the interest period ends or the previous year of assessment the nominal value of securities held by them exceeded £5,000. In this case, the taxpayer bought and sold the gilts in the one day and hence was no subject to a charge under the accrued income scheme.

While Ireland does not have an accrued income scheme, the decision should prove useful in any case involving a complex anti-avoidance structure.

For further details, see page 39.

Irving v R & C Commrs [2007] EWHC 147 (Ch)

Funded unapproved retirement benefits scheme (FURBS)

In this case, it was held that contributions to a FURBS in the form of transfers of shares were deemed to be income of the taxpayer assessable under Schedule E.

The decision was based on the key issue that the transfer of shares constituted the payment of a sum. It was specifically mentioned that the words ‘pays a sum’ were not confined to payments in cash.

It should be noted the legislative provision relevant to this case (s.595 ICTA 1988) was repealed by the Income Tax (Earnings and Pensions) Act 2003.

While not specifically relevant to Ireland, the discussions on ‘pays a sum’ etc may be considered useful.

For further details, see page 40.

Special Commissioners

Bennett v R & C Commrs

Self-employed expenses & Employee expenses – wholly, exclusively and necessarily

The taxpayer was a scaffolder who had periods of employment and self-employment. For periodswhen he was employed, he claimed various expenses for travel, accommodation, food etc. No receipts were produced to support the claims. For periods of self-employment, similar expense claims were submitted.

The Special Commissioner based his decision in relation to the employment expenses on Ricketts v Colquhoun (1925) [10 TC 118] in respect of duality of purposes – the taxpayer had to live somewhere and to eat to live, so the deduction for subsistence and accommodation was not due. The actual expense items were considered in detail – the travel expenses related to travel between his accommodation and his place of work, which was considered ‘ordinary commuting’ and hence not allowable.

In relation to the self-employed expenses, the sums claimed were round figures and unsupported by receipts. Again, the expenses were not allowed on the basis of duality of purposes.

As Irish legislation is similar, this decision may have some relevance in Ireland.

For further details, see page 41.

Jacques v R & C Commrs

Tax Administration

In this Special Commissioners decision, the Revenue refused to issue a closure notice to the taxpayer in respect of an inquiry into his tax return and the issue of a penalty notice on the basis that the taxpayer had failed to comply with an unconditional direction by the general commissioners to supply certain documents and business records to complete their inquiry.

The Commissioner concluded that the Revenue had shown that there were reasonable grounds for not issuing a closure notice and they did not breach any of the taxpayer's human rights.

For further details, see page 43.

VAT and Duties Tribunals

Morganash Ltd

Insurance-related services

In this case, the appellant received instructions from life assurance companies to carry out telephone interviews of applicants for life insurance cover for the purpose of determining the applicants’ medical history.

Both parties were satisfied that the above service failed to qualify under art. 13 (B) (a) of the Sixth Directive as interpreted by the ECJ in Staatssecretaris van Financhien v Arthur Andersen & Co (C-472/03) as the appellant was neither an insurance broker nor an insurance agent.

The key issue surrounded the meaning of “insurance intermediary”. The tribunal allowed the appeal on the basis that the appellant was an insurance agent acting in an intermediary capacity – the services supplied by the appellant were related to insurance contracts and they formed an essential part of the risk assessment process which resulted in the necessary nexus between the services and the contract of insurance.

For further details, see page 44.