The Court of Appeal confirmed that contributions to a funded unapproved retirement benefits scheme (FURBS)in the form of transfers of shares were payments of sums within ICTA 1988, s. 595(1) assessable to Sch. E income tax.

Facts

The taxpayer appealed against an amendment to his self-assessment to income tax for the year 1996-97. The amendment was an increase of £145,051 to the income assessable under Sch. E, reflecting the Revenue's view that a contribution represented by transfers of 16 shareholdings in different quoted companies to a FURBS was to be treated as income of the taxpayer assessable under Sch. E pursuant to ICTA 1988, s. 595 (repealed by ITEPA 2003, with effect for income tax purposes from the year 2003-04; the language of the replacement provision (ITEPA 2003, s. 386) gave rise to the same point as arose in this appeal).

The taxpayer contended that the payments were not within s. 595(1) as that provision applied only to monetary contributions and not to contributions in kind. The Revenue contended that those references should be construed purposively to include references to the transfer of non-monetary consideration, such as the shares in this case, which was capable of valuation in monetary terms.

The special commissioners ((2006) Sp C 526) and High Court ([2007] BTC 269) dismissed appeals by the taxpayer. The taxpayer appealed to the Court of Appeal.

Issue

Whether the transfers of the shares constituted the payment of a sum for the purposes of s. 595(1).

Decision

Rimer LJ (Maurice Kay and Sedley L JJ agreeing) said that the more natural meaning of the phrase ‘pays a sum’ was ‘pays a sum of money’. However, that was not the end of the matter, since the taxpayer had rightly accepted that the context in which the phrase was used might compel the conclusion that Parliament intended it to have a wider meaning, including the transfer of non-cash assets.

Whilst the taxpayer submitted that an employer's transfer of shares to a scheme would not be a transaction by which the employer ‘pays a sum’ to the scheme within s. 595(1), he accepted that it would nevertheless be a ‘sum paid’ within FA 1989, s. 76(3), with the consequence that the employer would not be entitled to deduct it as an expense in its own tax computations. A similar concession was made in relation to ‘sum paid’ in ICTA 1988, s. 592(4), in line with the court's apparent assumption in the case of Lowe (HMIT) v Peter Walker (Warrington) and Robert Cain & Sons Ltd (1935) 20 TC 25. The taxpayer's assertion that the consideration of whether or not a payment or transfer was a ‘sum paid’ that the employer was entitled to deduct in its tax computations arose in a context quite different from that which arose in the consideration of whether or not the same payment or transfer was a ‘sum paid’ for the purposes of a charge to tax under s. 595(1) was unconvincing. When an employer ‘pays a sum’ under s. 595(1), it must also be a ‘sum paid’ for the purposes of s. 76(3). Those phrases had to have the same meaning, and if the latter phrase included a transfer of shares, so must the former. Further support for the same interpretation of s. 595(1) was to be found in ICTA 1988, s. 596(3). Payment in s. 596(3)(b)(ii) bore a wider meaning than ‘payment of money’. Unless it also embraced the transfer of assets then the result would be absurd. That supported the view that at least the word ‘pays’ in s. 595(1) might not be being used in any narrow sense.

The overall context in which s. 595(1) used the phrase ‘pays a sum’ pointed away from the conclusion that it should be construed narrowly as meaning ‘pays a sum of money’. The taxpayer's concessions as to the wider meaning of ‘sum paid’ in s. 592(4) and in FA 1989, s. 76(3), the unlikelihood of ‘payment’ in s. 596(3)(b)(ii) bearing the narrow meaning of ‘payment of a sum of money’ and the practical difficulties of the taxpayer's interpretation for the operation of ICTA 1988, s. 596A(8) had collectively satisfied the court that, objectively interpreted in its proper context, the phrase ‘pays a sum’ in s. 595(1) included not just the payment of money but also the transfer of non-cash assets. The suggested distinction between those two funding methods was one that in practice made no commercial sense and could not reflect any legislative policy intended to underlie s. 595(1).

Court of Appeal (Civil Division).

Judgment delivered 25 January 2008.