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Special Commissioners' Decisions

12 September 2001 / Allison Plager
Issue: 3824 / Categories:

ALLISON PLAGER summarises two recent cases.


Non-qualifying accountancy services


ALLISON PLAGER summarises two recent cases.


Non-qualifying accountancy services


Castleton Management Services, a company limited by shares, was incorporated on 30 September 1994. It carried on in the trade of supplying its employees to Bartons Chartered Accountants under various contracts. In August 1997, 299,900 eligible shares were issued to five subscribers. Part of the money raised was used to repay company debts. In October 1997 the company requested permission from the Inspector of Taxes to issue certificates to the subscribers so that the conditions for enterprise investment scheme relief were satisfied. In May 1999, the Inspector formally refused permission, on the grounds that Castleton's trade was not a qualifying one, as it comprised the provision of accountancy services, and that the shares were not issued to raise money for a qualifying business activity.

The Special Commissioner said that the main issue in question was whether the activities of Castleton amounted to a substantial part of the trade of providing accountancy services. Counsel for Castleton argued that all the company did was supply employees, stationery and professional literature to the Barton partnership, which in turn provided accountancy services to its clients. However, the Special Commissioner noted that Castleton's invoices referred to the 'provision of services', and the company admitted that the invoices should have been worded differently.

The Special Commissioner said that it was common ground that Castleton was providing the services of accountants to the partnership, and agreed with the Revenue that there was virtually no difference between the provision of the services of accountants and the provision of accountancy services. In the Commissioner's view, by supplying an accountant to the partnership, Castleton was supplying accountancy services, and this did not amount to the supply only of a human being. It was necessary to consider the person's qualifications, and the reasons why he was being supplied. Overall, the Inspector was correct to refuse to authorise the certificate, as the trade was not a qualifying one for the purposes of the enterprise investment scheme.

The company taxpayer's appeal failed.

The provision of services to excluded trades by a separate company intended to benefit from enterprise investment scheme relief has previously been thought to be a valid structure. This case may therefore upset many other similar arrangements. The decision is open to criticism since the supply of specialist workers in a particular industry seems to be a different matter from the supply of the products sold by that industry. It is to be hoped that there will be an appeal.


(Castleton Management Services Ltd (SpC 276).)


Employee's legal expenses


The appellant, a dealer on the Stock Exchange, was registered by his first employer with the Securities Association as it was a condition of his employment. He later moved to another employer. This resulted in his registration with the first employer ending, and the second employer having to register him. However, the appellant was being investigated by the first employer and, because of this, the Securities Association refused the second employer's request to register him.

The second employer agreed to employ the appellant, provided that he observed a number of conditions. These included that he keep the second employer informed of all material developments in the investigation.

The appellant was keen to resolve the investigation and, between May and August 1990, spent around £5,700 on legal advice in order to defend himself and speed up the process. In September 1990, he was cleared, so his Securities Association registration was completed and he resumed his employment with the second employer.

In October 1996, the appellant claimed relief under section 33, Taxes Management Act 1970 in respect of the legal fees. The Inspector refused the claim, so the appellant appealed.

The Special Commissioner considered section 198(1), Taxes Act 1988, and said she had to decide if the appellant was necessarily obliged to expend the money wholly, exclusively and necessarily in the performance of his duties. She first looked at whether the expenditure had been incurred in the performance of the duties of the appellant's employment at the time the expenses were incurred. Applying the relevant case law, e.g., Ricketts v Colquhoun 10 TC 118, Eagles v Levy 19 TC 23, she said that the duties of the appellant at the time the expenditure was incurred were contained in the contract with his second employer. He did not have to take legal advice in the performance of those duties, as the advice related to an issue with his previous employer. Rather the expense helped put him in the position to perform his duties, and this would not qualify under section 198(1). Inevitably, the appeal therefore had to fail.

However, the Special Commissioner briefly discussed the other requirements of the section. With regard to 'necessarily obliged', she said that the appellant took the legal advice for personal reasons, it was not an objective requirement of his employment. Thus he was not necessarily obliged to incur the expenditure. Finally, she said that the expenditure was not incurred 'wholly, exclusively and necessarily' in the performance of his duties, as it was not incurred in the performance of his duties in the first place.

The appeal was dismissed.


(Ben Nevis (SpC 281).)


Issue: 3824 / Categories:
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