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An employer constructed a scheme whereby it purchased a reversionary interest in an offshore trust, which it transferred to the director, to whom the trustee of the fund paid a cash sum when the interest fell into possession. The aim was to ensure that the director received a benefit in kind, so as to avoid employers' National Insurance contributions. The Revenue said that pay-as-you-earn should have been applied.
An employer constructed a scheme whereby it purchased a reversionary interest in an offshore trust, which it transferred to the director, to whom the trustee of the fund paid a cash sum when the interest fell into possession. The aim was to ensure that the director received a benefit in kind, so as to avoid employers' National Insurance contributions. The Revenue said that pay-as-you-earn should have been applied.
The Special Commissioner, dismissing the appeal, said that by applying anti-avoidance principles in W T Ramsay v Commissioners of Inland Revenue 54 TC 101, there had been a payment under section 203(1), Taxes Act 1988. The High Court dismissed the appeal, concluding that there had been a payment under section 203B, because the payment had effectively been made to the director by the trustee.
The Court of Appeal held that it was quite legitimate to apply Ramsay to the concept of payment in the context of the pay-as-you-earn system. The concept of payment was practical and commercial, and for the purposes of pay-as-you-earn payment meant actual payment. Applying Ramsay to the composite transaction in this instance, meant that the employer had decided that the directors would receive a cash payment, and that was what the directors received. Thus the cash payment was assessable under section 203(1).
The appeal was dismissed.
(DTE Financial Services Ltd v Wilson, Court of Appeal, 3 April 2001.)
Legitimate claim
Greenwich Property Ltd was a wholly owned subsidiary of the University of Greenwich. The university decided to construct a student village, and fund part by means of a private finance initiative. An arrangement was made under which the university granted a lease of the site to Greenwich Property. A development company was to construct and maintain the residences. Greenwich Property granted a lease of newly constructed buildings to the university whereby it used the accommodation during term-time, but the development company could use it during the summer vacation.
The university issued a certificate that the supply related to buildings intended for a qualifying use under Note 4 of item 1 of Group 5 of Schedule 8 to the VAT Act 1994, and the supply was therefore zero rated. However, Customs said that the certificate was wrongly issued as the university had granted a licence to the development company to use the accommodation in the summer vacation. Customs claimed that this was tax avoidance, and raised an assessment accordingly.
The tribunal said that it did not have jurisdiction to hear the appeal, so Greenwich Property applied for judicial review.
Mr Justice Collins said that a university could take advantage of the concession that supplies made in respect of constructing a building used for residential accommodation for students were zero rated under item 1(a)(ii) of Group 5 of Schedule 8, even if the third party was using the accommodation for different purposes. The word 'solely' in item 1(a)(ii) meant effectively 'solely in term-time', since the purpose behind the concession was to allow universities to make profitable use of the accommodation in vacation-time, and still get the zero rating. Customs might not like the concession being used to pay less VAT, but nothing in the language of the legislation prevented it.
Customs was not entitled to raise the assessment.
The appeal was allowed.
(R (on the application of Greenwich Property Ltd) v Commissioners of Customs and Excise, Administrative Court, 28 March 2001.)
