[2011] UKFTT 212 (TC)
 
TC01077

Appeal number TC/2009/12214

Appeal against amendment made to Appellant’s tax return as a result of his spending more than 183 days in the UK because of his son’s serious illness requiring hospitalisation in the UK-whether-compassionate grounds applied-appeal dismissed

FIRST-TIER TRIBUNAL

TAX 

	NICHOLAS OGDEN	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

				TRIBUNAL: S.M.G.RADFORD
						A.P.C.HUGHES

Sitting in public at 68 Lombard Street, London EC3V 9LJ on 14 January 2011

The Appellant in person

Mr C.Williams for the Respondents

© CROWN COPYRIGHT 2011

DECISION

1.	This is an appeal against an amendment made to the Appellant’s self assessment tax return for the year ending 5 April 2003 following an enquiry into the return.
2.	The return before the amendment was made showed that £94,298.60 of tax was due for repayment and the amendment resulted in a £224,512.22 increase in the tax due. The amended self assessment was that tax of £130.213.62 was due.
3.	The Appellant appealed on 27 January 2005 and applied for the payment of the tax to be postponed.
Background and facts
4.	The Appellant is a Jersey resident and has been since 1988. In early 2002 his son Richard who was seriously ill was admitted to Papworth Hospital in Cambridge for a heart and lung transplant which was the only option for his survival.
5.	The Appellant was employed by a company called WorldPay, which he had created, through its Jersey company and did not have any UK bank accounts. In 2001 RBS launched a hostile takeover bid to acquire WorldPay which the board was forced to accept in early 2002.
6.	In August 2002 when his son’s health became of great concern the Appellant took leave from WorldPay to be with his son at the hospital. In order to ascertain his tax position he telephoned the Cambridge tax office and was told that if he did not exceed ninety working days whilst in Cambridge his other days would fall under a compassionate visit dispensation.
7.	His son died on 13 October 2002 and when he returned to work he was fired from his job for no apparent reason. Under the terms of his contract he had fourteen days to agree and finalise his termination agreement which was completed and signed but despite this the Appellant did not receive the agreed payment.
8.	His lawyers subsequently received a phone call from RBS to question the Appellant’s tax status. RBS insisted that 22% was to be withheld from the payment although they had no legal right under the termination agreement to do so and the agreement stated that the Appellant was to be responsible for any tax that should be due.
9.	By letter dated 16 July 2004 HMRC opened an enquiry into the Appellant’s tax return based on the information provided to them by RBS. The letter stated that the enquiry would cover all of the Appellant’s employment income including the termination payment and that the HMRC would also be looking into the Appellant’s UK residence. The tax return submitted showed the Appellant as resident but not ordinarily resident in the UK.
10.	At the same time HMRC wrote to the Appellant’s agent asking for further information concerning payments received by the Appellant during the relevant tax year.
11.	As a result of the information provided which included details of the Appellant’s days in the UK which amounted to more than 183 days HMRC reached the conclusion that the Appellant was resident and ordinarily resident in the UK for the tax year ended 5 April 2003 and closed their enquiry amending his tax return to include all the income he had received during the year including his termination payment.
12.	HMRC stated that they had considered whether it would be more beneficial to treat the Appellant as resident but not ordinarily resident in the UK for the relevant year but that as he had no overseas workdays in that year it would not help.
13.	The Appellant’s agent appealed on the basis that the termination payment was in respect of the whole of the Appellant’s service with WorldPay and therefore related partly to duties performed in Jersey and should be apportioned accordingly. They added that the proposed tax treatment of the termination payment was not consistent with the treatment which other individuals covered by the termination payment had received.
14.	HMRC replied that whilst they were sympathetic to the Appellant’s circumstances the law had to be applied. This was that for the year in question the Appellant was paid £772,707 in respect of his duties as a director of WorldPay. The duties were for the year in question when he was resident in the UK. As there were no overseas duties in that year the payment must have been in respect of duties performed in the UK where as an executive director of the company the duties could not be regarded as incidental duties.
15.	The agent reiterated that all the advice given to the Appellant had been on the basis that if the termination payment was liable to UK tax it would only be in relation to the proportion of the payment that related to the period when his duties were performed in the UK. The Appellant’s son had just died when the employment ceased and therefore if he had continued to work for the ensuing year this work would have been undertaken in Jersey. The agent stated that it was their understanding that both foreign emoluments and other earnings for someone who is resident but not ordinarily resident in the UK where paid for duties of employment performed outside the UK are only liable to tax when received in the UK and none of the Appellant’s income was remitted to the UK.
16.	A meeting was held with HMRC on 12 December 2006. HMRC said that in their view there was no doubt that the salary paid in lieu of notice was contractual. The agent said that the Appellant would argue that the sums were not paid as a result of a contractual right but only after the Appellant threatened to sue the company for breach of his employment agreement. HMRC said that there was an established principle that such sums took on the nature of the payments that would have been made under the contract. 
17.	No agreement was reached at the meeting and the agent mentioned that he believed there were Human Rights issues which required investigation. The HMRC officer said that he would submit the case to his head office for their view. The Appellant asked that they take into account the wider effect of seeking tax from someone who had no option but to stay in the UK for compassionate reasons.
18.	By letter dated 18 April 2007 Mr Williams of HMRC wrote to the Appellant’s agent to inform the Appellant that the view of his head office was that the termination payment and the salary remained liable to UK tax subject possibly to a small reduction for non-UK duties.
19.	The Appellant did not seem aware of this letter so emailed Mr Williams in January 2008 to enquire what was happening. Again he stated that he had twice spoken to the Cambridge tax office to clarify the position and been told by them that his actions were correct and that tax should not have been deducted. He stated that there was nothing published that stated that compassionate days should be added to worked days if the total of the compassionate and worked days exceeded 183 days.
The Law
20.	Section 336 of the Income and Corporation Act 1988 (“ICTA”) states:
Temporary residents in the United Kingdom

(1)A person shall not be charged to income tax under Schedule D as a person residing in the United Kingdom, in respect of profits or gains received in respect of possessions or securities out of the United Kingdom, if—

(a)he is in the United Kingdom for some temporary purpose only and not with any view or intent of establishing his residence there, and
(b)he has not actually resided in the United Kingdom at one time or several times for a period equal in the whole to six months in any year of assessment,
but if any such person resides in the United Kingdom for such a period he shall be so chargeable for that year.
(2)For the purposes of Cases I, II and III of Schedule E, a person who is in the United Kingdom for some temporary purpose only and not with the intention of establishing his residence there shall not be treated as resident in the United Kingdom if he has not in the aggregate spent at least six months in the United Kingdom in the year of assessment, but shall be treated as resident there if he has.
21.	Section 19 of ICTA states that tax under Schedule E shall be charged in respect of any office or employment on emoluments therefrom which fall under one or more of the following cases:
Case 1 	any emoluments for any year of assessment in which the person holding the office or employment is resident and ordinarily resident in the United Kingdom, subject however to section 192 if the emoluments are foreign emoluments (within the meaning of that section) and to section 193 (1) if in the year of assessment concerned he performs the duties of the office wholly or partly outside the United Kingdom

22.	Leaflet IR 20 produced by HMRC states at paragraph 1.2:
You will always be resident if you are here for 183 days or more in the tax year. There are no exceptions to this.
The Appellant’s Submissions
23.	The Appellant submitted that exceptional circumstances applied in his case. The sole reason for him having breached the 183 days in the UK rule in the tax year ending 5 April 2003 was due to the ill health of his son Richard. He did not understand why days spent in the UK for exceptional circumstances including compassionate grounds were taken into account in considering the 91 day rule but there was no such provision in respect of the 183 day rule.
24.	He had been told that there was a provision in Jersey tax law that was applied on a discretionary basis if you exceeded the number of days for compassionate reasons alone. If you did so the tax authority could make an exception and ignore the overstay. At the time he asked if it was thought that there was a similar provision in the UK and was told that there probably was because there was always a provision for exceptional or compassionate circumstances.
25.	At the time he also phoned the Cambridge tax office to explain his position regarding an overstay caused solely as a result of his son being in Papworth Hospital. He explained the Jersey provision and was told that it sounded alright, not to worry and they hoped Richard would get well soon. After he received the amendment to his tax return he had phoned the Cambridge office again and was given exactly the same answer.
26.	By September 2002 his son’s condition had become desperate so he took compassionate leave from the company. On returning to work he was dismissed and was angry that he had been misled into thinking that his job was secure.
27.	He submitted that he did not work in the UK in excess of 90 days, was in the UK solely on compassionate grounds while his son was in hospital receiving treatment not available in Jersey and had his son not been there he would not have exceeded his UK days.
28.	It just so happened that in that tax year his employment was terminated and he received a termination payment in addition to his salary. Had it been received in either the preceding year or the following year neither his normal salary nor his termination payment would have been subject to UK tax.
29.	The duties in the UK for which he was remunerated fell far short of what his normal duties would have been had his son not been so seriously ill. The payments he received were whilst he was effectively on compassionate leave and as such he did not perform any duties of employment in the UK.
30.	He did not believe that the result arrived at could have been intended by the legislation.
HMRC’s Submissions
31.	Mr Williams said that HMRC had every sympathy with the Appellant’s position however the intention of Parliament could only be considered when the wording of the legislation was ambiguous. The wording of Section 336 of ICTA however was entirely clear and was mandatory.
32.	He said that whilst he had every sympathy with the Appellant in view of the tragic personal difficulties he had faced the fact remained that he was in the UK for more than 183 days for the tax year ending 5 April 2003. As such the law deemed that he was resident in the UK for tax purposes.
33.	HMRC had given consideration to any exemption that might be due to the Appellant. There were no exceptions to this law and HMRC had no discretion to create any such exceptions.
Findings
34.	The Tribunal found that HMRC had correctly issued the amendment to the Appellant’s tax return. The Tribunal found that the Appellant was resident and ordinarily resident in the tax year ending 5 April 2003.
35.	The Tribunal found that it was not possible to consider him resident but not ordinarily resident in the UK for that year as there were no duties performed outside the UK in that year.
36.	The Foreign Service Exception could not apply to the termination payment which is charged under Section 19 ICTA and not Section 148 ICTA.
Decision
37.	The appeal is dismissed.
38.	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: 28 MARCH 2011