[2010] UKFTT 29 (TC)

TC	00343
Appeal number TC/2009/11982

INCOME TAX – ‘general earnings’ within the charge to income tax under s.6 ITEPA – whether the transfer of a cottage to the Appellant at an undervalue constituted a profit of the Appellant’s office or employment with his building company as being a transfer at an undervalue which was ‘money’s worth’ within s.62(3) ITEPA – found on the facts that the transfer was made under an arrangement carried out by the Appellant with the company in his individual capacity and not as a director or employee pursuant to which he would personally contribute one half the development costs of the project in question in return for one of the two cottages which the company would otherwise have retained as its reward for the project – decision in principle in favour of the Appellant

FIRST-TIER TRIBUNAL
TAX CHAMBER

	DESMOND JOHN THRESH	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS (Income Tax)	Respondents

				TRIBUNAL: 	JOHN WALTERS QC
						HARVEY ADAMS FCA						
Sitting in public in Norwich on 16 December 2009

A. Webster, Accountant, for the Appellant 

P. Oborne, for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.	Mr. Thresh (the Appellant) appeals against an amendment to the self assessment made in relation to the year of assessment 2004/05 in his Tax Return for that year.  The amendment followed the Inspector’s conclusion that “Asset Transfer and Chargeable Beneficial Loan” had been omitted from the Return (her letter dated 8 October 2008).
2.	At the root of the dispute is the contention of the Respondents (“HMRC”) that the transfer by a Mr. Baxendale (of whom more hereafter) to the Appellant of a newly built cottage, 2 Burleigh Cottages, at St. Ives, Cambridgeshire (“the Cottage”) constituted a profit of the Appellant’s office or employment under his company, Hunt’s Construction Limited (“the Company”), which was money’s worth within section 62(3) Income Tax (Earnings and Pensions) Act 2003 (“ITEPA”), and accordingly “earnings” within Chapter 1 of Part 3 of ITEPA (see: section 62(2) ITEPA), “general earnings” (see: section 7(3) ITEPA), and within the charge to tax on employment income under section 6 ITEPA.
3.	Mr. Oborne, for HMRC, asked the Tribunal to give a decision in principle as to whether this contention is correct.  We are content to deal with the appeal on this basis, thus not being directly concerned with the figures at this stage, and leave any resultant adjustment to the amendment to the self assessment to the parties to agree, or failing agreement, to relist for a further decision by the Tribunal.
4.	Several bundles of documents were provided to us including an unagreed Statement of Facts handed up by Mr. Webster, for the Appellant.  We heard oral evidence from the Appellant, who was cross-examined by Mr. Oborne.  We also received a witness statement made by a Mr. Adrian Cook on behalf of the Appellant.  Mr. Cook was not present at the hearing of the appeal and so Mr. Oborne was unable to cross-examine him.  We have read the witness statement, but bear in mind Mr. Cook’s not being present for cross-examination in determining the weight to be given to the evidence contained in it.  We have in fact derived no assistance from it.
5.	From the evidence we find the following facts.
The facts
6.	The Appellant is a builder, and since 1997 has traded solely through the Company.  He is the sole director and shareholder of the Company, which has 5 employees.
7.	In 2003 the Appellant discussed with Mr. Baxendale, already an acquaintance of his, a proposal for the construction of 3 cottages in the garden of a house (Burleigh House, St. Ives) belonging to Mr. Baxendale.  Mr. Baxendale had already obtained planning permission for the construction of the cottages, subject to conditions.  Listed Buildings consent was required as Burleigh House was listed and the site was in a conservation area.  The discussions culminated in a letter dated 1 October 2003 sent by the Company, and signed by the Appellant on the Company’s behalf, to Mr. Baxendale.
8.	The letter described “a rough proposal for our joint venture”.  The chief features were that Mr. Baxendale was to provide the land for the development, and he was to pay for architects’ fees, structural engineers’ fees, planning fees etc. and he was to provide a full engineer’s report on foundations, all steel work and soil tests.  The Company was to build the three cottages at its own cost and to provide the NHBC 10 year warranty for all three cottages.  The Company was also to provide a new boundary wall to separate the cottages from Burleigh House.  Once construction was completed the Company was “to hand over … the title of plot 1 to Mr. Baxendale”.  Both parties were to pay their own legal expenses.  A specification for the new cottages was included in the letter.
9.	At this stage (1 October 2003), therefore, the proposal was that Mr. Baxendale would provide the land, the Company would build the three cottages and, on completion, retain two of them, while the title of one cottage would be transferred by the Company to Mr. Baxendale.  In other words, it was envisaged that an entity under the Company’s control, which could have been the Company itself, would take the land and build the cottages on it.  The reward for the Company’s construction services would be the two cottages which it retained, while the reward to Mr. Baxendale for his contribution of the land together with his provision of planning and other professional fees, would be to take one cottage for himself.
10.	 The Appellant told us, and we accept, that underlying the proposal outlined in the letter dated 1 October 2003 was the assumption that it would be possible to borrow on the security of the land to fund the cost (or some of the cost) of the construction of the cottages.
11.	The formal contract relating to the development was not entered into until 27 September 2004.  Construction had however started in June 2004, before the formal contract was entered into and indeed before the necessary Listed Buildings consents were obtained.  The Appellant realised that there was a risk in proceeding in this way before the formalities were concluded, but it was a risk he was prepared to take.  He was in any case protected against Mr. Baxendale failing to cooperate because he could and would have withheld the NHBC certificate in that case. Indeed, if he had thought that Mr. Baxendale would not sign a contract he would have put the roof on the development and stopped the work.  He was confident that such difficulties would not arise, and indeed they did not.  The building work was finished in the middle of October 2004.
12.	Chronologically, the next document in our papers after the letter dated 1 October 2003 is a board minute of the Company, signed by the Appellant as Director, and dated 9 January 2004.  The minute evidences an “agreement between [the Appellant] and the Company in relation to his purchase of Plot 2, Burleigh Cottage, St. Ives”.  The Company’s resolution was that it would sell Plot 2 to the Appellant “upon completion” and that the sale and purchase price would be “half the development costs, including direct costs and a proportion of overheads applicable to the project”.
13.	There is also with our papers an exchange of emails sent on 20 April 2004 and 22 April 2004.  On 20 April 2004 the Appellant, having taken advice from Adrian Cook, his accountant, emailed his solicitor asking that a “legally binding agreement” be set up between the Appellant and the Company whereby “in exchange for me sourcing this deal for the Company it’s agreed that I get to buy personally one of the remaining plots for £82,000”.  The solicitor, Mr. Ross of Copleys, replied on 22 April 2004 that “the agreement with Mr. Baxendale allows for the transfer of either plot into either the Company’s name or as the Company may direct.  Accordingly there is no difficulty in the plot being transferred to yourself [i.e. the Appellant].” Mr. Ross went on to advise that a sale contract between the Company and the Appellant to transfer the plot for £82,000 could be prepared but that there would be additional consideration for stamp duty land tax purposes “i.e. your work in sourcing the deal”.
14.	Mr. Ross’s email of 22 April 2004 indicates that there was at that time in existence an agreement with Mr. Baxendale allowing for the transfer of either plot (that is either of two plots) into either the Company’s name or as the Company may direct. The Tribunal was told, and accepts, that the contract finally entered into on 27 September 2004 was in draft in early 2004, possibly as early as January 2004.
15.	That contract provided (recital 3) that “the transfer of any property by Baxendale to Hunt’s will be with vacant possession upon completion” and (Clause 9(xiv)) that “Baxendale will transfer title to plots 2 and 3 to or by the direction of Hunt’s upon their producing the NHBC or equivalent certificate and the local authority Certificate of Completion.  Baxendale will take possession of plot 1 on receipt of the same certificate.”
16.	The contract also provided (Clause 8) that the Company (Hunt’s) would build the three cottages in accordance with the relevant Planning consent and Listed Buildings consent. 
17.	We find, therefore, that before April 2004, and probably before 9 January 2004, but after 1 October 2003, the basis for the joint venture between Mr. Baxendale and the Company had changed from one where the Company would “hand over at the end of the project the title of plot 1 to Mr. Baxendale” to one where “Baxendale will transfer title to plots 2 and 3 to or by direction of [the Company] upon their producing the NHBC or equivalent certificate and the local authority Certificate of Completion [and that] Baxendale will take possession of plot 1 on receipt of the same certificate”.
18.	 Before the change, the Company was to have title to the building land while the building works were carried out and was to retain title to plots 2 and 3 following completion.  After the change, Mr. Baxendale was to retain title to all plots while the building works were carried out and would on completion (a) transfer title to plots 2 and 3 to or by direction of the Company, and (b) take possession of plot 1.
19.	The Appellant suggested in evidence that the reason for the change was that Mr. Baxendale had been advised that it would be unwise for him to transfer the title in the land to the Company or some other jointly owned entity because if the Company had gone insolvent he would not have been adequately protected.  We accept that this is a possible, even probable, explanation.  The important point, however, is that this change in the basis on which the project would be carried out meant that the Appellant (as Director of the Company) had to find an alternative means of financing the Company’s participation in the project.  
20.	The minute of 9 January 2004 makes it clear that the Appellant’s preferred solution to this problem was that he would himself introduce from his own funds (or funds available to him personally) “half the development costs, including direct costs and a proportion of overheads applicable to the project”.  In return he would take one of the cottages on completion (Plot 2) – i.e. the Cottage.
21.	The minute refers to a purchase of Plot 2 by the Appellant from the Company. In the event, the contract dated 27 September 2004 provided for a transfer by Mr. Baxendale “to or by direction of” the Company.  We regard any inconsistency in the wording as irrelevant and understandable.  Clearly, by 9 January 2004, the Appellant had decided to invest half of the development costs from his private resources and, in return, take one of the cottages (Plot 2) into his own ownership.
22.	An extract of the Appellant’s Director’s Loan Account with the Company, which is with our papers, shows that £50,000 was paid to the Company, described as “(mortgage) re Burleigh Cottages” in July 2004, a further £40,000 was similarly paid in November 2004, and a further £15,000 was similarly paid in January 2005. These amounts total £105,000 and it is accepted by Mr. Oborne, for HMRC, that one half of the actual cots of the development was £104,284. The funds were raised by the Appellant by a mortgage of another property, 6 Weir Close, Hemingford Grey.
23.	The second and third of these payments were made after the building work had been completed and we accept the Appellant’s evidence that these payments were timed to put the Company in funds to meet the creditors’ bills relating to the development.  We accept that the Appellant effectively made stage payments in connection with the construction of the Cottage on Plot 2.
24.	Plot 2, Number 2 Burleigh Cottages (i.e. the Cottage) (and parking space numbered 2) was transferred by Mr. Baxendale to the Appellant by a transfer document dated 1 November 2004. Plot 3 (and parking space numbered 3) was similarly transferred by Mr. Baxendale to the Company by a separate transfer document, also dated 1 November 2004.  In each case the consideration is stated to be £58,333.  This amount is one-third of £175,000, which is the sum stated to be the agreed value (fixed after the parties had taken professional advice) of the three cottages in the contract dated 27 September 2004 (Clause 9(i)). 
25.	The emails of 20 and 22 April 2004 explore the possibility of putting into effect a legal arrangement (the sale of the Cottage by the Company to the Appellant for £82,000) which was not acted upon.  
26.	In 2006, the Appellant sold the Cottage to the Company for a price of £190,000.  The Company presently owns both 1 and 2 Burleigh Cottages, which are let to tenants.
27.	The Appellant separated from his wife in October or November 2003.  He used the Cottage as a residence when it was in his ownership.
The parties’ submissions
28.	 Mr. Webster, for the Appellant, contended that the Appellant, by making contributions to the building costs acquired an equitable interest in the land as against Mr. Baxendale. His submission was that when Mr. Baxendale transferred 2 Burleigh Cottages to the Appellant, the effect was simply to change the Appellant’s antecedent beneficial interest in the Cottage to legal ownership of it.  This did not involve the transfer of any money’s worth to the Appellant.
29.	He also submitted that we should regard the contractual negotiations which took place as creating a tripartite agreement between Mr. Baxendale, the Company and the Appellant, pursuant to which the Appellant became entitled to have the Cottage transferred to him. (In his address to the Tribunal in reply to Mr. Oborne’s submissions he indicated that he would not maintain this submission.)
30.	He referred the Tribunal to Wilkins v Rogerson (1960) 39 TC 344, in which the High Court (Danckwerts J.) confirmed the Special Commissioners’ decision that the provision of a tailored suit to an employee by his employer was an advantage that could be turned into money and therefore ‘money’s worth’ assessable to tax, and that the quantum assessable was the market value of the suit when it became the employee’s property (i.e. its second-hand value).
31.	He submitted that it was part of the ratio of that decision that the ownership of the suit had been transferred from the employer to the employee.  His contention was that the Cottage, in contrast, had not been transferred by the Company to the Appellant, and on that ground this case was distinguishable from Wilkins v Rogerson. 
32.	Mr. Webster stressed that the Appellant had taken a risk with his own money, and any profit he received was attributable to his having taken the risk of investing in the construction of the three cottages and not to his employment or office under the Company.  The board minute of 9 January 2004 set out the commercial basis for what the Appellant did, which was to fund half the development costs which the Company was obliged to incur under the agreement with Mr. Baxendale, and receive half the reward which it was envisaged that the Company would receive under that agreement – i.e. one of the two cottages to which it had been intended that the Company would become entitled. Mr. Webster submitted that this was evidently a transaction on arm’s length terms, because the Appellant and the Company were each taking half the risk and each was receiving half the reward.  If the Company had gone into liquidation before the project was successfully completed, Mr. Webster suggested that the Appellant would have lost his money. 
33.	He submitted in summary that any profit to the Appellant in the transfer to him of the Cottage was not properly taxable as earnings from his office or employment under the Company, either because the Appellant was already entitled to the profit by virtue of his accrued beneficial interest in the Cottage, or because it was a reward for his having taken the risk involved in financing one half of the development costs of the project (all three cottages).
34.	He submitted that the profit was not attributable to the Appellant having ‘sourced the deal’, to use the term adopted in the exchange of emails of April 2004.
35.	He made a further point (a new point which had not been dealt with in correspondence with HMRC), which was that if the circumstances did give rise to a taxable profit, by reason of the Appellant becoming entitled to the Cottage at an undervalue, then that profit accrued at the latest on 9 January 2004, the date of the board minute noting the Company’s decision to sell the Cottage to the Appellant for a price of half the development costs. On that basis the profit accrued in the year of assessment 2003/04 and not the year 2004/05 which was the year of the amendment which was the subject of the appeal.
36.	Mr. Oborne, for HMRC, submitted that the Appellant had received the benefit of being provided with the Cottage at an undervalue, in circumstances where he could have sold it immediately on the open market for a profit.  He relied on Wilkins v Rogerson for the proposition that the advantage of receiving the Cottage at an undervalue was ‘money’s worth’ assessable to income tax as earnings of his employment.  The measure of the tax liability was the profit which the Appellant would have realised if he had immediately sold the Cottage on the open market.
37.	He submitted that the ‘money’s worth’ was assessable by reference to the date when the Appellant received the benefit, which was when the Cottage was transferred to him, i.e. on 1 November 2004, within the year of assessment 2004/05. In particular, the date of the board minute (9 January 2004) is not significant because the Appellant could subsequently at any time before the transfer have changed his mind regarding the provision to himself of the Cottage.
38.	He accepted that on his case the Tribunal must decide that the transfer of the Cottage to the Appellant at an undervalue was a benefit received by him by reason of his employment.
39.	He submitted that the benefit was received by reason of the Appellant’s employment because he had acted in the development entirely in his capacity of sole Director of the Company, and not as an individual. The property had been transferred to the Appellant at the direction of the Company.
40.	He stressed that neither Mr. Baxendale nor Mr. Cooke was present to give oral evidence and be cross-examined and he urged that the Tribunal should be cautious in accepting the Appellant’s uncorroborated evidence.
41.	On the evidence before the Tribunal, Mr. Oborne pointed to the email of 20 April 2004 as indicating that the Appellant’s intention was that he would receive the Cottage at an undervalue as a reward for ‘sourcing this deal for the [C]ompany’.  The solicitor, Mr. Ross, had confirmed in his email of 22 April 2004 that this could be achieved in accordance with the agreement with Mr. Baxendale.  The final contract of 27 September 2004 makes no mention of the Appellant’s alleged interest and should be taken by the Tribunal as reflecting the true position as intended by the parties.
42.	Mr. Oborne submitted that the Appellant was attempting to put into effect a tax and NICs avoidance scheme.  He would move into the Cottage and later sell it to the Company.  The capital gain attributable to his period of ownership/residence would be exempt from capital gains tax and the Company would take the Cottage at a base cost which was higher than it would have been without the intervening period of ownership of the Cottage by the Appellant. He suggested that it had always been envisaged that there would be a sale of the Cottage by the Appellant to the Company at some stage. (This point had not been put to the Appellant in cross-examination.)
43.	HMRC accepted that the capital gain attributable to the period of the Appellant’s ownership of the Cottage does not attract capital gains tax, but contended that the undervalue at which the Appellant acquired the Cottage is properly taxable as earnings from his office or employment.
44.	Mr. Oborne accepted that the payments totalling £105,000 were made by the Appellant to the Company, but he noted that they were made via his Director’s loan account and submitted that they should be regarded as injections of funds into the Company to be used by the Company for its purposes, rather than as contributions towards the building costs made by the Appellant on his own account.
45.	Mr. Oborne submitted that the undervalue at which the Cottage was transferred to the Appellant should be regarded as his reward for ‘sourcing the deal’.  He effectively introduced Mr. Baxendale to the Company and provided to the Company the opportunity for making the profit associated with the project.
46.	He accepted that the venture could not have gone ahead if the Appellant had not provided funding to the Company, but he submitted that it was the Company, not the Appellant, which took the commercial risk associated with the project.
47.	He submitted that the Appellant ended up with a cottage acquired at an undervalue.  The only reason for his obtaining this advantage was his office or employment with the Company.  It should not be regarded as a reward for taking a commercial risk, or for providing the finance, because there was no documentary evidence to support any such proposition.
48.	He invited the Tribunal to disbelieve the Appellant’s evidence on that point.  But when the Tribunal asked him what his submission would be in the event that the Appellant’s evidence was believed, he simply reiterated his point that the Appellant had received the advantage as a Director of the Company for ‘sourcing the deal’.
49.	Mr. Oborne, in answer to a question from the Tribunal, stated that he was not aware of any provision to the effect that as a matter of law any ‘money’s worth’ accruing to an employee from a dealing with his employer was automatically to be taxed as earnings of the employment.  This contrasts with provisions such as section 71(2) ITEPA pursuant to which the mere provision of a benefit by an employer is treated without more as provision by reason of the employment unless the employer is an individual and the provision is made in the normal course of the employer’s domestic, family or personal relationships.
Discussion and Decision
50.	The question the Tribunal has to answer is whether or not the transfer of the Cottage by Mr. Baxendale to the Appellant constituted a profit of the Appellant’s office or employment under the Company, which was ‘money’s worth’ within section 62(3) ITEPA.
51.	In our judgment the legal basis on which the Cottage was transferred to the Appellant was that title to it was transferred to him by Mr. Baxendale by direction of the Company pursuant to Clause 9(xiv) of the contract between Mr. Baxendale and the Company dated 27 September 2004.
52.	We reject Mr. Webster’s submission (not maintained by him in his reply to Mr. Oborne’s submissions) that there was a tripartite agreement between Mr. Baxendale, the Company and the Appellant pursuant to which the Cottage was transferred to the Appellant. That submission was not supported by the documentary evidence.
53.	We also reject Mr. Webster’s submission that the Appellant had a beneficial interest in the Cottage before it was transferred to him.  We consider that the contract between Mr. Baxendale and the Company dated 27 September 2004 makes it clear that Mr. Baxendale retained legal title to the site of the three cottages until he transferred the title of Plot 2 and Plot 3 to the Appellant and the Company respectively on 1 November 2004.  In our judgment the evidence does not support a case that the Appellant (or indeed the Company) acquired any beneficial interest in any of the cottages in consequence of funding the building works provided for by the contract.  We agree with Mr. Oborne that the contract dated 27 September 2004 reflects the true position as intended by Mr. Baxendale and the Company (and the Appellant on behalf of the Company).
54.	The transfer of the Cottage to the Appellant was caused entirely by the arrangement which he had made with the Company.  It did not concern Mr. Baxendale at all, save to the extent that Mr. Baxendale transferred the Cottage to the Appellant at the direction of the Company pursuant to the terms of Clause 9(xiv) of the contract dated 27 September 2004.  
55.	We are persuaded by the documentary evidence that the Appellant dealt with Mr. Baxendale at all times qua director of the Company and not on his own behalf as an individual. 
56.	We will assume (without deciding) for the purposes of this Decision that the Cottage was transferred to the Appellant at an undervalue. We have received no adequate evidence relating to the quantum element of the dispute, and, as indicated above, are giving a decision in principle only.
57.	We therefore assume (without deciding) for those purposes that the Appellant received ‘money’s worth’ in that if he had sold the Cottage on the open market immediately after it was transferred to him he would have received a monetary profit.  This is the effect of the decision in Wilkins v Rogerson. (Contrary to Mr. Webster’s submission, there is nothing to indicate that it was part of the ratio of the decision in Wilkins v Rogerson that the suit was transferred by the employer to the employee. On the facts, it was not so transferred but was obtained directly from the tailor. In any case it is well settled that a profit of an employment can be received by an employee from a person other than his employer.)
58.	We reject Mr. Webster’s submission that any receipt of ‘money’s worth’ by the Appellant is referable to the year of assessment 2003/04 rather than 2004/05. Although we accept that the commercial basis of the arrangement between the Appellant and the Company is set out in the board minute dated 9 January 2004, that board minute sets out a resolution that the Company would sell and the Appellant would buy the Cottage “upon completion”.  The arrangement was clearly conditional on the Cottage being built, and building works did not finish until October 2004.  That was the earliest time at which ‘money’s worth’ could have accrued to the Appellant, assuming that the Appellant could at that time legally have required the Company to procure a transfer of the Cottage to him on the terms agreed between him and the Company.   
59.	The main issue for our decision is therefore whether or not the assumed receipt of ‘money’s worth’, which we assume took place in 2004/05, constituted a profit of the Appellant’s office or employment under the Company. 
60.	HMRC’s case is that it did, because the Appellant had acted in the development entirely in his capacity as sole Director of the Company, and not as an individual, and the Cottage had been transferred to the Appellant at the direction of the Company.  The receipt of ‘money’s worth’ should be regarded as the Appellant’s reward from the Company for ‘sourcing the deal’.
61.	In the Tribunal’s view this submission does not take adequate account of the fact that the Appellant contributed to the Company one half of the development costs, including direct costs and a proportion of overheads applicable to the project, amounting to £105,000, from his private resources.
62.	Those funds were contributed to the Company via the Appellant’s Director’s loan account, but we find that the evidence shows clearly that they were not general contributions to the Company’s funds to support its trade, but were instead specifically contributed to enable the Company to carry out the project of the construction of all three cottages, on terms that in recognition of the contribution of the funds the Company would procure that the Cottage was transferred to the Appellant.  That this was the commercial basis on which the Appellant made the contributions is made clear by the board minute dated 9 January 2004. 
63.	We regard the reference in the email of 20 April 2004 to the Appellant’s intention was that he would receive the Cottage at an undervalue as a reward for ‘sourcing this deal for the [C]ompany’ as a distraction.  As we have stated, the commercial basis of the arrangement between the Appellant and the Company had already been set out in the board minute dated 9 January 2004.  The exchange of emails in April 2004 records a stage in the Appellant’s thinking (reflecting advice he received from Mr. Cook at the time) as to how that arrangement might be given legal effect.  In the event no contract was entered into between the Appellant and the Company to the effect that the Appellant would receive the Cottage for £82,000 in exchange for him ‘sourcing the deal’ for the Company, as envisaged in the email.
64.	In any case it is difficult to see that the Appellant provided any valuable services to the Company which could be described as ‘sourcing the deal’ for it and for which the transfer of the Cottage to him could in reality have been a reward.  He certainly introduced the project to the Company in his role as Director.  But the Company would not have been able to carry out the project in the events which happened if the Appellant, as an individual, had not contributed one half of the development costs.
65.	We are not persuaded by any consideration of the commercial risk taken by the Appellant.  Clearly he did take a commercial risk, but that risk could either have related to his own participation in the project, as an individual assisting the Company, or to his investment in the Company which alone was carrying out the project.  
66.	In answer to the main question for our decision, we hold that the transfer to the Appellant of the Cottage, assuming it was a profit to him or ‘money’s worth’, was not received by him by reason of his office or employment under the Company, but, instead, by reason of his arrangement with the Company (entered into in his individual capacity and not as a director or employee) that he would provide financial assistance to the Company to enable it to carry out the development in return for the transfer to him of the Cottage on completion. 
67.	The Appellant contributed to the Company one half of the cost of the project in return for one half of the profit to be derived from the project by the Company. One of the reasons for which we have concluded that he entered into his arrangement with the Company in his individual capacity and not as a director or employee, is because it seems to us that the arrangement on these terms was such as might have been agreed by the Company with an arm’s length joint venturer.  
68.	For these reasons we decide in principle (in the Appellant’s favour) that the transfer to the Appellant of the Cottage did not constitute a profit of the Appellant’s office or employment under the Company.
69.	We leave the parties to agree how the appeal should be disposed of in the light of this Decision.  They should apply to the Tribunal to dispose of the appeal formally in accordance with what they have agreed.  If for any reason they are unable to agree how the appeal should be disposed of, both parties have liberty to apply to the Tribunal for the appeal to be listed for the Tribunal to make a further decision disposing of the appeal.

                             JOHN WALTERS QC

JUDGE OF THE FIRST-TIER TRIBUNAL
RELEASE DATE: 13 January 2010