Court of Appeal

Published June 5, 2007

Revenue and Customs Commissioners v Barclays Bank plc and Another

Before Lord Justice May, Lady Justice Arden and Lord Justice Scott Baker

Judgment May 11, 2007

Payments to former employees of a bank to compensate them for the termination of an arrangement to provide them with a free tax advice service were made in connection with past service and were chargeable to income tax as relevant benefits requiring the bank to account to the Revenue for the tax under the pay-as-you-earn provisions.

The Court of Appeal so held in a reserved judgment dismissing the appeal of the defendant, Barclays Bank plc, from Mr Justice David Richards in the Chancery Division ( The Times September 12, 2006) who allowed the appeal of the claimant, the Revenue and Customs Commissioners, from a determination of a special commissioner, Mr Julian Ghosh, who, on December 29, 2005, held that certain one-off payments made by the defendant were not made in connection with past service within the meaning of section 612(1) of the Income and Corporation Taxes Act 1988.

Until 1998, the bank had provided, or offered to provide, some of its pensioners and their surviving spouses with free assistance from one of its subsidiaries in preparing tax returns. On termination of that service, the bank made one-off cash payments in compensation. Section 596 of the 1988 Act related to tax on benefits under a nonapproved benefit scheme. Section 611 defined “retirement benefits scheme” and section 612(1) defined relevant benefits as including any lump sum given “in connection with past service...”

Miss Ingrid Simler, QC, for the commissioners; Mr Jonathan Peacock, QC and Mr Philip Walford for Barclays.

LADY JUSTICE ARDEN said that, looking to the words “in connection with” and applying dicta of Lord Hope of Craighead in Coventry Waste Ltd v Russell ([1999] 1 WLR 2093, 2103AD), the court had to look closely at the surrounding words and the context of the legislative scheme, so that the other parts of the definition of “relevant benefits” and the surrounding provisions of the legislative scheme would inform the court as to the extent of the link required for any particular provision.

The purpose of the definition was to identify the chargeable payments under a retirement benefits scheme; and a connection could be indirect or direct for the purpose of the definition of relevant benefits.

It was thus possible that the making of a payment would have a relevant connection with more than one thing, and in that situation it was necessary to see whether the connections could coexist, or whether one would exclude the other; and if the further connection displaced a prior connection the prior connection ceased to be a relevant connection for the purposes of section 612(1).

However, the definition of “relevant benefits” was not unbounded: there had to be a link with service; and the expression “give” was important where that word created a requirement for the maker of the payment to have known the facts constituting the link with past service.

Applying such an approach to the facts, the judge was correct in holding that there was a connection between past service and the giving of the payment: the free tax service had clearly been provided because the pensioners were former employees.

That link continued through the paying of compensation and the reason for paying compensation was to compensate the recipients for loss of the benefit previously received in connection with past service.

Thus the special commissioner had misdirected himself as to the meaning of the phrase “in connection with past service” and, although the findings of fact had not been appealed, there could be only one conclusion: namely, that the giving of the one-off payments was in connection with past service.

Moreover, the weight to be given to the criterion adopted for selection of recipients of the one-off payments was not displaced by any other fact in this case and made it inevitable that the appeal should fail.

Lord Justice Scott Baker and Lord Justice May agreed.

Solicitors: Solicitor, Revenue and Customs; Mr Paul Loftus, Poplar.

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