[2011] UKFTT 618 (TC)
TC01460
Appeal number: TC/2010/08720
Income
tax – Appellant sub postmistress receiving termination payment on closure of
sub post office – was this compensation for loss of office for the purposes of
Section 401 ITEPA – yes – appeal dismissed
FIRST-TIER TRIBUNAL
TAX
MRS
RUTH ORME Appellant
-
and -
THE
COMMISSIONERS FOR HER MAJESTY’S
REVENUE
AND CUSTOMS Respondents
TRIBUNAL: S.M.G.RADFORD (TRIBUNAL JUDGE)
M.TEMPLEMAN
Sitting in public at 8-10 Howard St reet, Bedford MK40 3HS on 9 August 2011.
Mr J. Orme for the Appellant
Mr A.D.Burke for the
Respondents
© CROWN COPYRIGHT
2011
DECISION
1. This
is an appeal against the taxation of a payment made to the Appellant in
compensation for her loss of office as a sub-postmistress.
2. HMRC
decided that after the £30,000 exemption under Section 403 of the Income Tax
(Earnings and Pensions) Act 2003 (“ITEPA”) the balance was taxable under
Section 401 of ITEPA.
Background and facts
3. The
Appellant purchased the Huttons business in August 1976. It comprised a newsagent,
tobacconist and confectioners with the sub post office attached.
4. In
November 2008 the Post Office decided to close the Appellant's sub post office.
5. On
closure of the sub post office a payment was made to the Appellant of £75,589.86.
6. The Appellant included the compensation payment in the
profit and loss account of the business for the year to 8 August 2009 and her tax return for the year 2009/10. It is significant that the amount included was
after deduction of the first £30,000.
7. Where
a retail trade or business within the scope of Case 1 Schedule D has been carried
on from the same premises as a sub post office the remuneration of the sub
postmistress can in practice be included with the income of her private trade
and accordingly assessed under schedule D. This was the situation in the Appellant's
case.
8. HMRC
grant this concession to simplify the tax affairs of the sub postmistress. It
is a long held concession which means that salary from the Post Office could be
included in the business accounts.
9. On
6 August 2010 HMRC opened an enquiry into the Appellant's 2008/2009
self-assessment return and explained that this was being done because there was
an omission of a payment received from the Post Office.
10. HMRC decided
that the payment was compensation for loss of office and should not have been
included with the income of the Appellant’s private trade. After deduction of
the £30,000 tax free amount HMRC accordingly decided that £45,589.86 of the
payment should be taxed in the tax year ending 5 April 2009. This led to the tax due in respect of the Appellant’s self assessment being increased to
£23,571.87.
11. Mr Orme stated
that this amount was in any event incorrect and should be £23,491.87 and HMRC
appeared to agree.
12. To ensure that
all compensation payments were assessed correctly the Post Office supplied full
details of all compensation payments made to sub postmasters and mistresses to
HMRC.
13. As a result of
this HMRC sent a statement of advice to the sub postmasters and mistresses. In
addition the National Federation of Sub postmasters made the information
available on their website and may have included it in their periodical.
14. The Appellant
however did not receive either the statement from HMRC or access the advice from
the National Federation.
Legislation
15. Section 5 of
ITEPA states:
(1)
The
provisions of the employment income Parts that are expressed to apply to
employments apply equally to offices, unless otherwise indicated.
(2) In those
provisions as they apply to an office—
(a) references
to being employed are to being the holder of the office;
(b)“employee”
means the office-holder;
(c)“employer”
means the person under whom the office-holder holds office.
16. Section 401 of
ITEPA states:
This Chapter
applies to payments and other benefits which are received directly or
indirectly in consideration or in consequence of, or otherwise in connection
with—
(a)the
termination of a person’s employment,
(b)a change
in the duties of a person’s employment, or
(c)a change
in the earnings from a person’s employment,
by
the person, or the person’s spouse, blood relative, dependant or personal
representatives.
17. Section 403 of
ITEPA states:
(1)The amount
of a payment or benefit to which this Chapter applies counts as employment
income of the employee or former employee for the relevant tax year if and to
the extent that it exceeds the £30,000 threshold.
(2)In this
section “relevant tax year” means the tax year in which the payment or other
benefit is received.
(3)For the
purposes of this Chapter—
(a)a cash
benefit is treated as received—
(i)when it
is paid or a payment is made on account of it, or
(ii)when the
recipient becomes entitled to require payment of or on account of it, and
(b)a
non-cash benefit is treated as received when it is used or enjoyed.
Appellant’s Submissions
18. Mr Orme
confirmed that the Appellant had not received any notice from HMRC concerning
the payment and he had just treated the payment as income and included it in
the Appellant’s Schedule D income as he had been doing since the business was
acquired without having previously received any queries from HMRC concerning
this treatment.
19. He contended
that HMRC should have ensured that the Appellant received the notice.
Additionally by effectively moving the compensation payment back into the
previous tax year instead of 2009/10 the Appellant now fell into the higher
rate tax bracket.
20. He contended
that had he known that the payment was to be taxed as compensation and not
included in the business accounts he would have ensured that the Appellant put
the payment into her pension scheme thus avoiding the higher rate of tax.
21. Mr Orme
submitted that the enquiry had been opened more than a year after the
submission of the 2008/09 tax return. The Appellant’s return for that year had been
posted to HMRC on 21 July 2009 and was received by them on 24 July 2009.
22. In conclusion Mr
Orme stated that the Appellant had filed her tax return in exactly the same way
as she had done for the last thirty-two years and if there was to be a change
then she should have been so informed by HMRC.
HMRC’s Submissions
23. Mr Burke
confirmed that whilst the salary of a sub postmistress could by concession be
included in the profits of a trade and taxed under Schedule D this did not
apply to compensation payments for loss of office.
24. The position of
sub postmistress was considered an office and accordingly the compensation
payment was taxable under Section 401 of ITEPA by virtue of Section 5 of ITEPA subject
to the first £30,000 which was tax free.
25. The Appellant’s
tax return was received on 23 July 2009 and under Section 9 of the Taxes
Management Act 1970 (“TMA”) HMRC has twelve months from that date to check the
return. If this date is passed however Section 29 TMA allows the return to be
checked if there is a “discovery”.
26. Mr Burke
referred to the decisions in the cases of Basil Bimson v HMRC [2010]
UKFTT and Anthony Cude v HMRC [2010] UKFTT both of which found that
compensation payments in the similar circumstances were assessable under
Section 401 of ITEPA.
Findings
27. The Tribunal
found that the payment had been correctly assessed under Section 401 of ITEPA.
28. The Tribunal
found that HMRC had correctly decided that the Appellant held an office.
29. The Tribunal
found that HMRC had correctly opened the enquiry having “discovered” that the
payment had been incorrectly included in the profits of the Appellant’s trade.
30. The Tribunal
found Mr Orme’s evidence to be truthful but whilst the Tribunal had sympathy
with the Appellant who had not received the notice from HMRC and hence fallen
into the higher rate of tax for the relevant year, the Tribunal found that this
would be a matter for the HMRC complaints department or the Revenue
Adjudicator.
Decision
31. The appeal is
dismissed.
32. This document
contains full findings of fact and reasons for the decision. Any party
dissatisfied with this decision has a right to apply for permission to appeal
against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal)
(Tax Chamber) Rules 2009. The application must be received by this Tribunal
not later than 56 days after this decision is sent to that party. The parties
are referred to “Guidance to accompany a Decision from the First-tier Tribunal
(Tax Chamber)” which accompanies and forms part of this decision notice.
TRIBUNAL JUDGE
RELEASE DATE: 7 September 2011
