| REVENUE — Income tax — Pension — Former employer providing pensioners and surviving spouses with free tax advice service — Service terminated — One-off payments made by way of compensation — Whether taxable as “relevant benefit” provided under “retirement benefits scheme” — Income and Corporation Taxes Act 1988, ss 596A (as inserted by Finance Act 1989, s75, Sch 6, Pt 1, paras 1, 9, 18(7)), 612(1)
Revenue and Customs Comrs v Barclays Bank plc and another [2007] EWCA Civ 442
CA: May, Arden and Scott Baker LJJ:11 May 2007
Where an employer had provided a free tax advice service to its pensioners and surviving spouses and, on termination of the service, made one-off payments in compensation, the provision of such payments constituted a relevant benefit under a retirement benefits scheme for the purposes of ss 596A and 612(1) of the 1988 Act.
The Court of Appeal so held when dismissing the appeal of the defendant, Barclays Bank plc, from a decision of David Richards J sitting in the Chancery Division on 11 August 2006 by which he allowed the claimant’s appeal from a decision of Special Commissioner Mr IJ Ghosh. On 29 December 2005 the Special Commissioner held that certain one-off payments made by the defendant were not made “in connection with past service” within the meaning of s 612(1) of the 1988 Act. The judge reversed that finding and the defendant now appealed.
Before 1998 the defendant provided or offered to provide some of its pensioners and their surviving spouses with free assistance from one of its subsidiaries in preparing their tax returns. When the service was terminated one-off cash payments were made to compensate pensioners concerned for the loss of this benefit. An issue arose whether such payments were taxable as a “relevant benefit” provided under a “retirement benefits scheme” by virtue of s 596A of the Income and Corporation Tax Act 1988 as the legislation stood in 1998. Further, s 612(1) of the 1988 Act provides: “‘relevant benefits’ means any pension, lump sum, gratuity or other like benefit given or to be given on retirement or death, or in anticipation of retirement, or, in connection with past service, after retirement or death, or to be given on or in anticipation of or in connection with any change in the nature of the service of the employee in question...”.
ARDEN LJ said that regard was to be had to the expression “in connection with” and, applying dicta of Lord Hope of Craighead in Coventry Waste Ltd v Russell [1999] 1 WLR 2093, 2103, the court had to look closely at the surrounding words and the context of the legislative scheme, so that the other parts of the definition of “relevant benefits” and the surrounding provisions of the legislative scheme would inform the court as to the extent of the link required for any particular provision. The purpose of the definition was to identify the chargeable payments under a retirement benefits scheme; and a connection could be indirect or direct for the purpose of the definition of relevant benefits. It was thus possible that the making of a payment would have a relevant connection with more than one thing, and in that situation it was necessary to see whether the connections could co-exist, or whether one would exclude the other; and if the further connection displaced a prior connection the prior connection ceased to be a relevant connection for the purposes of s 612(1). However, the definition of “relevant benefits” was not unbounded: there had to be a link with service; and the expression “give” was important where that word created a requirement for the maker of the payment to have known the facts constituting the link with past service. Applying such an approach to the facts, the judge was correct in holding that there was a connection between past service and the giving of the payment: the free tax service had clearly been provided because the pensioners were former employees. That link continued through the paying of compensation; and the reason for paying compensation was to compensate the recipients for loss of the benefit previously received in connection with past service. Thus the Special Commissioner had misdirected himself as to the meaning of the phrase “in connection with past service” and, although the findings of fact were not appealed, there could be only one conclusion, viz that the giving of the one-off payments was in connection with past service. Moreover, the weight to be given to the criterion adopted for selection of recipients of the one-off payments was not displaced by any other fact in this case and made it inevitable that the appeal should fail.
SCOTT BAKER LJ and MAY LJ agreed.
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