The High Court upheld a decision of the Revenue and Customs Commissioners that the pension payable to a British Airways pilot in Jersey was liable to UK tax at the full rate in accordance with the provisions of the Income and Corporation Taxes Act 1988.

Facts

The taxpayer was born in the UK but had been resident in Jersey, the Channel Islands, since 1966; he had no place of residence in the UK. He had been employed for many years as a pilot for British Airways and its predecessors flying predominantly long-haul flights. He had retired in 2000 at the age of 55, the compulsory retiring age for British Airways pilots. He was entitled to a pension from the relevant BA final salary pension scheme.

Because of the nature of the taxpayer's duties as a pilot, the vast majority of his duties were undertaken outside the UK. On average, over the 30 years that he worked for BA or its predecessors, his annual duties in the UK were in the region of 7 per cent. It was accepted that only the proportion of the duties actually undertaken in the UK as part of his employment, would be liable to deduction of UK tax. The balance would be liable solely to tax in Jersey which was, at all relevant times, 20 per cent.

The taxpayer understood that when he came to retire (his intention being to remain resident in Jersey on retirement) his pension would be entirely free of UK tax and would be subject solely to any applicable Jersey tax. In the event, on his retirement, the Revenue informed him that 100 per cent of his pension payments from the British Airways scheme would be subject to deduction of UK income tax at the full rate of 40 per cent.

The taxpayer applied for judicial review of that decision claiming that it was contrary to a representation made to him by the Revenue in the early 1970s, was contrary to the policy which the Revenue had previously adopted with regard to British Airways pilots resident in Jersey and was inconsistent with the tax treatment accorded by the Revenue to other British Airways pilots resident in Jersey who had retired.

Issue

Whether it would be unfair and contrary to the taxpayer's legitimate expectation for the Revenue to deduct UK tax at the full rate from the taxpayer's pension payments.

Decision

Davis J (dismissing the application) said that the BA pension scheme was a UK scheme and an approved retirement benefit scheme for the purposes of ICTA 1988, Pt. XIV. In those circumstances, and by operation of the primary legislation, UK tax was payable and deductible under the PAYE scheme on pension payments from such a scheme, notwithstanding that a recipient at all relevant times had not himself been resident in the UK but had, for example, been resident in Jersey.

There was a double tax arrangement in place between the UK and Jersey which meant that the taxpayer would be liable to no extra tax on his pension payments in Jersey if tax was paid under the UK tax legislation. However, the current applicable tax rate in Jersey was 20 per cent, whereas the deduction in the UK was 40 per cent.

Representation

The first and principal point which the taxpayer had raised was to rely on a representation which he said was made to him in the early 1970s, and perhaps 1972, by the Inland Revenue to the effect that if he remained resident in Jersey, as he had done, he would not be liable to UK tax on his BA pension. Although the court accepted that the taxpayer believed that he would not have to pay UK income tax on his pension, it had not been shown that such belief was attributable to any specific and unequivocal representation by the Revenue on which it was intended that he should rely, and the taxpayer could not have had any legitimate expectation, in public law, except that he would be taxed in accordance with law and Revenue practice (R v IR Commrs, ex parte MFK Underwriting Agents Ltd [1989] BTC 561 considered).

Revenue policy

The taxpayer had also submitted that the Revenue had acted inconsistently and arbitrarily and had departed from a policy which had been carried into effect by the Revenue office which dealt with pilots in the BA scheme. On the evidence the Revenue appeared always to have attempted to apply the same policy contained in EP8281 and its predecessors. If the local branch had misunderstood or misapplied that policy that was not something from which the Revenue would not be free to depart.

The courts would ordinarily be slow to promote into a policy, available to the entire class of relevant taxpayer, an asserted practice which a particular branch had allowed to develop acting under a mistake or misapprehension. It might be that some other British Airways pilots had been fortunate but it did not follow that the taxpayer should, as a matter of public law fairness, share in that fortune by requiring a continuation of the mistake or misapprehension. However, quite apart from that, the court was in fact not satisfied that there was such a practice or policy. The evidence showed that the particular office considered the case of each BA employee by reference to his or her individual circumstances.

In public law terms, the doctrine of unfairness (in common with the subordinate doctrine of legitimate expectation) did not operate on a subjective basis. Those doctrines were applied by reference to the facts of each case on a principled basis. There was, in public law terms, no requirement of fairness, legitimate expectation or proper and consistent application of policy which precluded the Revenue from assessing the taxpayer as liable to UK tax on his BA pension.

Queen's Bench Division (Administrative Court). Judgment delivered

25 November 2005.