Special Commissioners' Cases

ALLISON PLAGER reports some recent decisions.

The appellant was born in England in 1958 and acquired a domicile of origin from his father. In 1986, he took a job based in Hong Kong, where he took a lease of a residential property. He returned to the United Kingdom only once or twice a year for holidays. In 1990, the appellant's sister and brother-in-law moved to Hong Kong, and during that year, the appellant married a girl (who was a United Kingdom national). They were married in England, but returned to live in Hong Kong where all three of their children were born. In 1992, the appellant had the option of returning to the United Kingdom, but chose to remain in Hong Kong, and was later appointed a director of the company for which he worked. In 1997, when the hand-over of Hong Kong to China became imminent, the appellant successfully applied for permanent resident status there, although he retained his British passport. The appellant and his wife also owned a house in Thailand for holiday and investment purposes.

In 1999, the appellant established a discretionary trust in Jersey for the benefit of his family. The trustees were based in Jersey, and £247,000 was transferred into the trust. The appellant's adviser applied for a formal ruling from the United Kingdom Inland Revenue that the appellant was not domiciled in the United Kingdom. The Capital Taxes Office refused this saying that the appellant had retained his domicile of origin.

The Special Commissioner said that the evidence, at the time of the transfer to the trust in 1999, showed that the appellant intended to reside permanently in Hong Kong. Residence was not intended to be for a limited period, but generally and indefinitely. He had family there, rights of permanent abode there, and his business future was there. The fact that he had a house in Thailand did not lead to the conclusion that he intended to reside in more than one country.

The appellant had acquired a domicile of choice in Hong Kong, and abandoned his domicile of origin in England.

The appeal was allowed.

(Surveyor (SpC 339).)

The appellant made a substantial business expansion scheme investment in March 1993. He did not make the appropriate claim for relief until January 1999, which the Revenue refused as being nearly four years' too late. The taxpayer therefore claimed section 33, Taxes Management Act 1970 (error or mistake), which the Revenue also refused, and the taxpayer appealed to the Special Commissioners.

The Revenue said that because the relevant return did not have space for a business expansion scheme relief claim, no error or mistake had been made in the return. The Commissioner agreed that in this respect no error or mistake claim could be made, but considered if a return could cover a business expansion scheme claim form. He decided it could not, since the Revenue had not decreed that such a claim be made in the return form.

The appeal was dismissed, although the Commissioner mentioned that under the Revenue's powers of care and management it could perhaps accept a late claim for relief. This however, was not within his jurisdiction.

(Dr C A Howard (SpC 329).)

A self-employed graphic designer claimed in her self-assessment tax return the cost of placing her two children in day nurseries, on the ground that these payments were made exclusively to allow her to run her business in a professional way.

The Special Commissioner, Dr John Avery Jones CBE, accepted that one of the purposes that the appellant used the nursery for her children was to prevent clients being distracted by interruptions from children and to enable her to carry out her work, but he did not agree that this was the only purpose. He said that it was inconceivable that it was not also her purpose to have the children properly looked after while she worked. Thus the expenditure had a dual purpose, and was not wholly and exclusively incurred for the purpose of the trade. The expenditure was therefore not allowable.

The appellant also raised human rights arguments, saying that the tax legislation was wrong in not allowing the deduction, since employers were permitted a deduction where they provided childcare for employees. However, the Revenue claimed that the human rights legislation could not apply, since the deductibility of the expenditure was incurred in a period before the Human Rights Act came into force. Dr Avery Jones agreed with the Revenue on this point, but looked at the appellant's argument in any event.

He said that an employer obtained a deduction for childcare expenses for employees because it was a benefit to the employees. Employees who incurred such costs themselves, however, could not deduct the expense. He concluded that a self-employed person paying childcare expenses herself was not in the same position as an employer paying for an employee, and therefore no discrimination existed.

The appeal was dismissed.

While there can be no argument with the law, and the appellant was highly unlikely to win this case, given the legislation, what is rather irritating is that the Revenue could not resist giving a puff for the Government's means tested childcare tax credit in the appeal. This has no relevance to the point at issue, and was not even available in the year that the appellant claimed her deduction. It is disappointing that Dr Avery Jones saw fit to draw attention to it at the end of his decision.

(Nena Maria Carney (SpC 347).)