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TULLETT and TOKYO FOREX INTERNATIONAL LTD SGW LTD BARCLAYS DE ZOETE WEDD SERVICES LTD V SECRETARY OF STATE FOR SOCIAL SECURITY [2000] EWHC Admin 350 (25th May, 2000)
Case No: CO/2038/1999
CO/2039/1999
CO/2040/1999
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
CROWN OFFICE
ROYAL COURTS OF JUSTICE
STRAND, LONDON, WC2A 2LL
Thursday 25 May 2000
BE F O R E :
THE HON. MR JUSTICE COLLINS
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TULLETT
& TOKYO FOREX INTERNATIONAL LTD
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SGW
LTD
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BARCLAYS
DE ZOETE WEDD SERVICES LTD
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V
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SECRETARY
OF STATE FOR SOCIAL SECURITY
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__________________________________
(TRANSCRIPT OF THE HANDED DOWN JUDGMENT OF
SMITH BERNAL REPORTING LIMITED, 180 FLEET STREET
LONDON EC4A 2HD
TEL NO: 0171 421 4040, FAX NO: 0171 831 8838
OFFICIAL SHORTHAND WRITERS TO THE COURT)
__________________________________
MR JOHN GARDINER Q.C.
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FOR THE APPELLANTS
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MR
DAVID EWART
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MR
LAUNCELOT HENDERSON Q.C.
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FOR
THE RESPONDENT
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MR
CHRISTOPHER TIDMARSH
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__________________________________
JUDGMENT
AS APPROVED BY THE COURT
CROWN COPYRIGHT ©
MR JUSTICE COLLINS:
1. Each of these three appeals by case stated under s.18(3) of the Social
Security Administration Act 1992 raises the same issue and there are no
material differences of fact in any of them. In those circumstances, they have
been heard together. Counsel on each side have based their submissions upon
the facts of one of them as representative of them all and I have not been
required to consider the detailed circumstances of any of them. Indeed,
counsel accepted that in explaining my decision I should as they have done set
out the scheme which has led to the dispute in general terms rather than
detailing the facts of the individual appeals.
2. The issue is whether in the circumstances Class 1 Contributions are payable
by the appellants as employers or secondary contributors on very substantial
sums which represent bonuses provided to employees. I was told that something
in the order of £350 million is at stake in these and other cases in which
the same sort of scheme has been used. The route by which these appeals reach
me is set out in ss. 17 and 18 of the Social Security Administration Act 1992.
S.17(1)(b) requires that any question relating to a person's contributions is
to be determined by the Secretary of State who may, by s.17(4), appoint a
person to hold an inquiry and report to him. Such an inquiry was held in these
cases in January 1997 and the person appointed (Mr. R.K. Miller C.B., a former
solicitor of Inland Revenue and a part-time chairman of VAT Tribunals) reported
on 10 August 1997. The Secretary of State reached his decisions in December
1997 and provided detailed statements of the grounds for them pursuant to
Regulation 15(2) of the Social Security (Adjudication) Regulations 1995 on 21
May 1998. In accordance with the provisions of RSC O.111 r.2, the Secretary of
State was required to and did state cases setting out the facts upon which his
decision was based and his decision. This he did. In each appeal the case
stated is dated 20 April 1999. Notices of Appeal to this court were lodged on
21 May 1999 and these appeals now come before me pursuant to RSC 0.111 r.1.
S.18(6) of the Social Security Administration Act 1992 provides:
"Notwithstanding anything in any Act, the decision of the court on a reference
or appeal under this section shall be final".
That is perhaps an unfortunate provision since the point to be decided, as Mr.
Henderson Q.C. indicated, is one with which no court has hitherto had to
grapple and a very large sum of money depends upon my decision. Furthermore,
the point is not by any means an easy one to determine. However, Parliament
has decreed that there should be no further appeal and so it falls to me to
make a final disposal.
3. The scheme used by each of the appellants can be summarised by reference to
the most helpful skeleton arguments lodged by both counsel. It was designed to
enable bonuses to be received by employees in a way which avoided the need for
the employers to deduct tax and which also avoided the payment by the employers
of Class 1 Contributions under the Social Security and Benefits Act 1992
(hereafter referred to as the 1992 Act). The question I have to determine is
whether the scheme has achieved the second of those objects by exploiting what
Mr. Gardiner, Q.C. has accepted may be regarded as a loophole in the
legislation. I gather it has achieved the first, but that does not of course
mean that tax will not be paid. It will, but by the employees at a later time.
But if the scheme has achieved the second object, the payment of national
insurance contributions is avoided altogether.
4. None of the employers was bound to pay bonuses in any particular amount or
at all. But it was no doubt anticipated by the relevant employees, who were
usually the more senior and the better remunerated, that bonuses would be paid.
The method by which such payment was achieved was through life policies taken
out by the employers (or in one case trustees on their behalf) on the
employees' lives. In the SGW case the case stated records in Paragraph
3(48):-
"The basis for these arrangements was the provision to highly paid employees of
a means of securing their future against the possibility of their leaving
employment before normal retiring age, something which was a real possibility
because of the pace of change in their ways of working taking place after 1986.
It was easier to administer than alternative methods, for example, setting up
an unapproved pension scheme. Employees were given policies as an
encouragement to gain for their future and some did respond".
In the other two cases, it is recorded that the recipients were expected to
surrender the policies immediately and receive the benefit in cash, but that
they could at their discretion retain the policies if they chose to do so. In
the Tullett appeal, it is stated (paragraph 3(50) that `realistically the
arrangements were just a way of paying bonuses in a way which was
beneficial'.
5. The scheme operates in the following stages:-
(1). The employer takes out a number of life policies of small value (a premium
in the order of £100 being normal) on the lives of the employees to whom
bonuses may be given with an insurance company, Albany Life Assurance Company
Ltd. (`the insurers'). Additional premiums can be paid at any time. Each
policy is owned both legally and beneficially by the employers and I am not
concerned whether there was an insurable interest. The employers were advised
that there was, but, even if that was wrong, the insurers were never going to
take the point. The policies themselves provided for the usual benefits of
such a policy including a surrender power on the request of the policyholder.
The benefits payable at any time were to be calculated by reference to funds
and units, but, as Clause 9(f) of the policies (which were in standard forms)
made clear, the references to units and funds were made purely for the purpose
of calculating the benefits conferred and "neither the policyholder nor any
other person entitled to benefit shall have any legal or beneficial interest in
the units or funds or any underlying assets which are solely the property of
the [insurers]". Thus the policyholder simply has a contractual right as
against the insurers.
(2). The employer executes a standard form declaration that it holds such of
the policies as are mentioned in the declaration on trust for particular named
employees as beneficiaries. Those are the employees who are to receive bonuses
and they then became beneficial but not legal owners of the policy or policies
concerned. At that stage, the policies are of very low value. As will be seen
in due course, it is accepted that the conferment of the beneficial interest in
the policy on the employee carries an obligation to pay Class 1
Contributions.
(3). The employer buys a short-dated gilt (no doubt because it is unlikely to
fluctuate significantly over a short period of time) of a value sufficient to
cover the bonuses which are to be paid. The gilt is owned by the employer.
(4). The gilt (or a sufficient part of it) is transferred to the insurers.
The insurers also receive a schedule from the employer which identifies the
amount of premium to be added to the policies relating to the various employees
and the insurers act accordingly. The effect of this transaction is to
transfer the legal and beneficial interest in the gilt to the insurers and to
increase according to the amount of premium allocated to it the value to the
beneficiary of each life policy.
(5). The employer executes a deed of assignment in standard form assigning
legal ownership of the policies to each of the employees concerned and the
insurers are notified accordingly. Thus the employee can keep the policy or
can exercise any of the rights under it, in particular the right of surrender.
The employer sends to each employee a letter informing him or her that the
surrender value will depend on the value of the units allocated on the date of
surrender. The recipients will be aware of the likely amount since, as I have
already said, the value of the gilt would be unlikely to fluctuate
significantly in the short time before any surrender option was exercised if
the employee wants his or her bonus in cash. The letter also points out that
the employer had been advised that the value of the premiums would be treated
as a benefit in kind for income tax purposes and so would not be subject to
deduction of tax at source.
(6). The employee usually, but not always, decides to surrender the policy or
policies with immediate effect whereupon the insurers pay the surrender value
in cash having sold the gilt (or a sufficient part of it) to place themselves
in funds.
6. The transactions with which I am concerned took place in the tax years
1992/3, 1993/4 and 1994/5. If there is a loophole, it has since been closed.
They were carried out over a very short period of time (in the BZW case less
than 10 days) and covered a substantial number of employees. But I have not
had placed before me any arguments based on the principle derived from
Ramsay v IRC [1982] AC 300. I must therefore decide
these cases giving full effect to the legal consequences of the scheme
involved.
7. I must now refer to the relevant legislative provisions. Class 1 National
Insurance Contributions are earnings related and are payable from employed
earners and from employers or other persons paying earnings (1992 Act
s.1(2)(a)). The former are designated primary, the latter secondary. Since
there is a cap on primary contributions, in reality these cases are likely to
concern only secondary contributions which are payable by the employers.
`Employed earner' is defined in s.2(1)(a) of the 1992 Act in these words: -
"`employed earner' means a person who is gainfully employed in Great Britain
either under a contract of service, or in an office (including elective
office) with emoluments chargeable to income tax under Schedule E".
8. It is convenient at this point to deal with an argument put by Mr. Gardiner,
Q.C. that s.2(1)(a) on its true construction supports his submission that the
approach of the courts in tax cases should be imported into the National
Insurance legislation. He submits that the words "with emoluments .......
Schedule E" govern both the forms of employment referred to in s.2(1)(a). Mr.
Henderson submits that the relevant words govern only employment in an office
and are needed because office holders may not receive any emoluments
notwithstanding that their employment can properly be described as gainful.
That Mr. Henderson's construction is correct is in my judgment put beyond doubt
by s.7 of the 1992 Act which identifies who is to be regarded as the relevant
secondary contributor and reads, so far as material:-
`.... the `secondary contributor' in relation to any payment of earnings to or
for the benefit of an employed earner, is -
(a) in the case of an earner employed under a contract of service, his
employer;
(b) in the case of an earner employed in an office with emoluments ...."
This form of words is wholly inconsistent with Mr Gardiner's submission.
9. I return to the legislation. `Earnings' are defined in s.3(1) in these
words:-
(a) `earnings' includes any remuneration or profit derived from an
employment; and
(b) `earner' shall be construed accordingly".
S.3 goes on to enable (s.3(2)) the amount of a person's earnings to be treated
as comprised in any payment made to him or for his benefit to be calculated or
estimated in such manner and on such basis as may be prescribed. Further,
regulations may prescribe that particular sorts of payments may be disregarded
or deducted from earnings (s.3(3)). The crucial section for the purposes of
these appeals is s.6(1). This reads:-
"Where in any tax week earnings are paid to or for the benefit of an
earner in respect of any one employment of his which is employed earner's
employment .... a primary and a secondary Class 1 contribution shall be
payable....."
The key words are those I have underlined. To anticipate the arguments, the
appellants submit that the gilts were not earnings paid for the benefit of the
employee but represented the cost to the employer of providing what was
properly to be regarded as earnings, namely the life policy whose value was
enhanced. This was a payment in kind. Mr. Henderson submits that the words
`for the benefit of' show that payments of earnings need not be made to the
employee direct and the payments of the gilts to the insurers was manifestly
made for the benefit of the employees who were thereby able to receive the
value of the premiums.
10. The Social Security (Contributions) Regulations 1979 (S.I. 1979/591), as
amended, cover many of the matters which the 1992 Act leaves to be
prescribed. They include payments which are to be disregarded pursuant to the
power conferred by s.3(3). Regulation 19 so far as material provides:-
"19(1). For the purposes of earnings-related contributions, there shall be
excluded from the computation of a person's earnings in respect of any employed
earner's employment any payment in so far as it is .....
(d) subject to Paragraph (5) of this regulation, any payment in kind .... or by
way of the provision of board or lodging or of services or other
facilities".
Broadly speaking, therefore, payments in kind are not to be taken into account.
However, Paragraph (5) provides substantial exceptions to the principle. It
reads:-
"Payments under (1)(d) of this regulation shall not include any payment by way
of the conferment of any beneficial interest in:-
(a) any asset falling within Schedule 1A to these regulations; or
(b) any contract the effecting and carrying out of which constitutes long term
business falling within Class 1 (life and annuity business), Class III (liked
long term business) or Class VI (capital redemption business) specified in
Schedule 1 to the Insurance Companies Act 1982".
Schedule 1A includes as assets by Paragraph 3:-
`Loan stock, bonds and other instruments creating or acknowledging indebtedness
issued by or on behalf of a government, local authority or public
authority'.
The provisions of Paragraph 19(5)(b) led to the inclusion of the conferment of
the beneficial interest in the policies on the employees referred to in
Paragraph 5(2) of this judgment in the payments upon which contributions had to
be made. At that time, the value was very small indeed. There has been no
subsequent conferment of beneficial interest in the policies on the
employees.
11. Thus the only way by which contributions could be payable would be if the
transfer of the gilts fell within Regulation 19(5)(a) and was a payment `for
the benefit of the employee' within the meaning of s.6(1) of the 1992 Act.
12. The only other regulation I need refer to is 18(2) which deals with
calculation of earnings. This reads so far as material:-
"..... the amount of earnings which is comprised in any payment by way of the
conferment of any beneficial interest in any asset specified in Schedule 1A to
these Regulations and which falls to be taken into account in the computation
of a person's earnings, shall, for the purposes of earnings-related
contributions, be calculated or estimated at a price which that beneficial
interest might reasonably be expected to fetch if sold in the open market on
the day on which it is conferred".
This approach is consistent with that applied in revenue law to assessment of
emoluments for the purposes of income tax chargeable on payments in kind,
namely that they should be valued on the basis of what they are worth to the
recipient.
13. The Secretary of State relied in the cases stated on two alternative
grounds for concluding that contributions were payable. The first I have
already identified. The payment to the insurers of the gilts conferred the
beneficial interest in them on the insurers and, although it was a payment in
kind, it was caught by Regulation 19(5)(a) of and Paragraph 3 of Schedule 1A to
the Contributions Regulations. The wording of Regulation 19(5) was wide enough
to cover the conferment of a beneficial interest on a third party for the
benefit of the employee and this was what had happened. The alternative ground
was that the employees had not in reality received a payment in kind but the
cash payment represented by the enhanced value of the policy in question. The
enhancement was equivalent to and should be regarded as a payment in cash or
money's worth.
14. The alternative argument has been abandoned and was not relied on before me
by Mr. Henderson. He accepted that the employees received a payment in kind in
the form of the life policy or policies with an enhanced value. This
concession seems to me to be inevitable in the light of the scheme as
described.
15. Central to Mr. Gardiner's submissions is the contention that the word
`earnings' must be given its proper weight in construing s.6(1). It is looking
to what the employee gets and the reference to remuneration underlines that.
Indeed, the Secretary of State in the cases concentrated on the words
`remuneration or profits' (which do not give an exhaustive definition of
earnings because of the use of the word `includes') and stated:-
"The Secretary of State considered that the word [remuneration] normally means
a quid pro quo, and extends to whatever consideration an employee gets in
return for giving his or her services".
This enables Mr. Gardiner to submit that what the employees got were the
policies with an enhanced value and that the payment of the gilts to the
insurers was the cost paid by the employers to enable them to provide the
policies to the employees.
16. The importance of distinguishing the payment to the employee from the cost
to the employer is, submits Mr. Gardiner, established in the cases under
income tax legislation which are concerned to establish what are the emoluments
upon which the taxpayer must pay tax. Those cases are, he submits, directly
applicable. He drew my attention to the National Insurance Act 1965 which by
s.4(2) limits the remuneration upon which Contributions are payable to "any
emoluments assessable to income tax under Schedule E". But this limitation is
not found in the Social Security Act 1973 which laid down a new regime and
which is the predecessor of the 1992 Act, itself a consolidating Act.
`Earnings' are not generally tied to `emoluments', although the 1992 Act
sometimes does (as, for example, in the second limb of s.2(1)(a)) equate the
two.
17. I agree with Mr. Henderson that the tax cases are not directly applicable
and that I should not, to use his words, approach s.6(1) wearing income tax
spectacles. But I cannot ignore them since they are concerned to show how to
ascertain what a taxpayer has received and are of assistance in determining how
to identify what an earner has earned. It is the distinction relied on by Mr.
Gardiner between payments to third parties representing the cost to the
employer and what is received by the employee that is not to be imported into
the national insurance regime. That submits Mr. Henderson, would be to fail
to give proper effect to the words `paid ... for the benefit of an earner' in
s.6(1).
18. It has long been established that the payment by an employer to a third
party to discharge a debt owed by the employee to that third party represents a
taxable emolument in the hands of the employee. It is considered to be money's
worth to him and is the equivalent of a payment in cash. This principle is
exemplified by Hartland v Diggines [1926] AC 289 where
the payment by the employers of a sum to discharge the employee's liability to
tax was treated as part of his emoluments upon which he had to pay tax. It has
been applied to the national insurance regime in R v D.S.S. ex parte
Overdrive Credit Card Ltd [1991] S.T.C. 129. That case is relied
on by Mr. Gardiner and so I should consider it with some care.
19. It was concerned with the effect of the provision to employees of credit
cards to enable them to purchase petrol. Overdrive agreed with an employer to
issue cards to the employer's employees who had full authority to use the cards
on their employer's behalf. There were separate agreements between Overdrive
and the participating garages whereby the garages debited the cost of the
petrol obtained by use of the cards to Overdrive and Overdrive then received
payment from the employers. Overdrive contended that a debt discharged not by
the employer but by a third party could not constitute earnings, alternatively
that there was a payment in kind, namely the petrol, which was excluded by
virtue of Regulation 19(1)(d) of the Contributions Regulations. The first
argument received very short shrift, Lloyd L.J. saying at p.134a:-
"...there is no difficulty in treating that payment as being made on behalf of
the employer. Since the ultimate discharge of the card-holder's personal
liability falls on the employer, it should make no difference whether it is
done directly or indirectly".
The alternative argument required careful analysis of the nature of the
individual transaction between the card holder and the garage. Counsel for the
Crown conceded and the court accepted that if the employee made clear to the
garage before filling up with petrol that he was buying as agent for his
employer the value of the petrol was not to be included in the employee's
earnings.
But counsel contended, basing his argument on Hartland v Diggines
(supra), that where the employee incurred a personal liability and only
tendered the card after filling his tank, there was a payment of money's worth
to him when that debt was discharged by the acceptance of his employer's
liability to pay instead of him. The court accepted this argument, Lloyd L.J.
saying at p.134b-g:-
"Counsel for Overdrive's second reason is much more finely balanced. Assuming
the discharge of the card holder's liability would otherwise be included in his
earnings, nevertheless it is to be disregarded by virtue of reg 19(1)(d). At
the outset of this part of this argument, counsel submitted that, looking at
the reality, what the employee receives is petrol in his tank. This should be
regarded as a payment in kind. There should be no difference between petrol
from a pump on the employer's own premises, which is admittedly a payment in
kind, and petrol from a commercial pump. But there are difficulties here; so
much that, by the close of his case, counsel was content to rely on the
alternative argument that the payment was `by way of the provision of ....
other facilities' (see reg 19(1)(d)).
This brings one to the heart of the problem in the present case. Counsel for
Overdrive submits that the discharge of an employee's liability by means of a
charge card is the clearest possible example of a payment by way of a facility.
That is what a charge card is for. It is something which renders easier the
performance of the employee's obligation to pay for the petrol, and therefore
falls four square within the definition of `facility' in the Oxford English
Dictionary.
Again counsel for the Crown is prepared to yield ground. The fact that an
employee does not have to carry cash is, he accepts, a `facility' in the
broadest sense of the word. But he argues that the use of the card to
discharge the card holder's debt goes beyond even the broadest sense of the
word, and certainly beyond the meaning of the word in the context of `board or
lodging or ... services or other facilities' (see reg 19(1)(d)).
I have found the point, as I say, finely balanced. `Facility' is a slippery
word. One sense in which it is commonly used by bankers, namely, an overdraft
facility, is not even mentioned in the dictionary. But in the end I have been
persuaded that counsel for the Crown's construction is correct. The right
approach is to regard the discharge of an employee's debt as the equivalent of
a payment in cash, and not less so because that payment is made easier by the
use of a charge card. The extent to which the payment is made easier (if it
could be measured in money terms) is to be disregarded under reg 19(1)(d). But
the payment itself is not.
If that be right, then Overdrive is not entitled to the declaration claimed in
para (B). There may be cases where the employee's petrol vouchers will not
attract liability to contribute, as where the petrol is used for business
purposes, or where he has incurred no personal liability. But as it stands,
the declaration is too wide".
20. Two important points emerge from the Overdrive case. First,
it is necessary to give effect to the legal result of a particular transaction
however artificial that may seem. Secondly, the discharge by an employer of a
debt incurred by an employee represents earnings paid on behalf of that
employee for the purposes of the national insurance regime. The court is
clearly focusing on the employee and identifying what, depending on the nature
of the transaction, he gets, whether directly, namely the petrol or indirectly,
namely the discharge of a debt owed by him. In the latter case, he gets the
equivalent of a payment in cash. Mr. Henderson does not attack the conclusion
or the reasoning in the Overdrive case but submits that the
argument he raises was not made and that it would have provided another route
to the same conclusion. Nothing said by the court is inconsistent with that
argument. Finally, Mr. Gardiner relies on the use made by the court of the tax
cases and the assistance it derived from them in solving the problem before
it.
21. Since tax and national insurance contributions are payable on what the
employee receives it would be surprising if, absent special provisions to deal
with individual circumstances, the approach should differ. Thus it is, in my
judgment, legitimate to seek guidance from the tax cases in identifying what
the earner has got by way of remuneration. That may be the same as what the
employer has paid, but not necessarily where payments in kind are concerned.
In such cases (and Regulation 18 of the Contributions Regulations supports
this), the value is the open market value if sold on that day. That means the
value to the employee and reflects the approach in the tax field as exemplified
by Wilkins v Rogerson (1960) 39 T.C. 344. In that case
employees were given a suit by the employers to be obtained from a particular
supplier. The cost to the employer was £14.15s; the resale value to the
employee was £5. Tax was only payable on the £5, that being the
worth of the suit to the employee.
22. The words in s.6(1) are wide and the payment by the employer for, for
example, the suit in Wilkins v Rogerson could be said without
doing violence to the language to be a payment for the benefit of the employee.
Mr. Gardiner contends and Mr. Henderson concedes that there must be a
limitation. The question I have to answer is what is the extent of that
limitation. I think that Mr. Gardiner is correct to focus on the word
`earnings' since that gives the clue. The limitation is that a payment for the
benefit of an employee must provide something for that employee and it is the
value of what the payment provides that constitutes his earnings. Thus if the
payment discharges a debt due, it can properly be regarded as the equivalent of
money paid to the employee. If it obtains a benefit in kind, it is the benefit
which is the earnings not the payment to obtain it.
23. I did not understand Mr. Henderson to dispute that generally speaking the
cost of obtaining a payment in kind should not be regarded as a payment falling
within s.6(1). But he contends that an enhancement of an asset in
circumstances such as arise in these cases should not be viewed in the same
way. The payment of the gilts to the insurers was intended to and did have the
effect of providing for the employee the means of obtaining money from an asset
he already held. And the value of the gilts represented (subject to negligible
fluctuations in value) the amount he would get. Accordingly, the payment can
without transgressing the general principle properly be regarded as a payment
of earnings for the benefit of the employee. This approach also coincides with
the reality of the situation since there was no benefit to anyone other than
the employee from the payment in question.
24. Mr. Henderson seeks to distinguish between a payment made to obtain
something for and a payment made to enhance the value of something already
belonging to an employee. The distinction is attractive where, as here, there
is an obvious correlation between the amount of the payment and the value to
the employee. But it is necessary to identify what the employee gets and it is
the enhancement of the value of his or her policy. That is accepted to be a
payment in kind and so will fall within Regulation 19(1)(d) unless subject to
any of the exceptions in Regulation 19(5). The exceptions are limited to
payments by way of the conferment of any beneficial interest in inter alia
policies of life insurance (Regulation 19(5)(b)). The beneficial interest in
the policy was conferred on the employee before its value was enhanced and
contributions were then payable. Thus Regulation 19(5) does not apply. It
would accordingly be somewhat curious if the cost of providing a payment in
kind were chargeable whereas the payment in kind itself, which was what the
employee received, was not. I recognise that s.6(1) of the 1992 Act will
prevail over the Regulations; nonetheless, the anomaly is obvious.
25. In any event, I am not persuaded that the distinction Mr. Henderson seeks
to draw is workable. An employer may, for example, pay for the repair or
maintenance of an asset belonging to an employee. Examples were given in
argument of repairs to his car or improvements to his home. The value to the
employee would be the increase in value of the asset but that would be likely
to be less than the cost of the repairs or improvements. If Mr. Henderson's
argument is right, the full cost paid by the employer should represent the sum
on which contributions are payable albeit the value to the employee of the
payment in kind obtained by the sum paid was less and perhaps considerably
less. I cannot discern any distinction in principle between that sort of case
and those before me. If there is to be a limitation to be read into s.6(1), it
must be based on a principle which applies in all circumstances. It seems to
me that the principle is to be found in what the employee receives whether
directly or indirectly as earnings. If it is a payment in kind, it will be
disregarded unless specifically brought into account. Payments made to third
parties for the benefit of employees must be payments of earnings and so must
be equivalent to payments made to employees such as were in issue in the
Overdrive case.
26. Mr. Gardiner did submit that in any event a commercial transaction such as
the payment to the insurers did not confer a beneficial interest. That
argument, which was somewhat faintly pursued, I reject. Whatever else it may
do, a sale will confer the beneficial interest in whatever was sold to the
purchaser.
27. It follows therefore that the payment of the gilts to the insurers was not
`earnings paid ... for the benefit of the earner' within the meaning of s.6(1)
of the 1992 Act and that these appeals must be allowed. I confess that I have
reached that conclusion with very considerable reluctance. But I cannot
strain the language of the statutory provisions even though many might think
that the reality of the situation ought to produce a different result. The
problem lies in the legislation and the piecemeal attempts to close loopholes
which the ingenuity of those advising employers identify and exploit. It may
be that at last Parliament is about to legislate in a manner which will make it
very difficult if not impossible to avoid liability to pay contributions. If
so, it is not before time.
© 2000 Crown Copyright
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URL: http://www.bailii.org/ew/cases/EWHC/Admin/2000/350.html
