Venables v Hornby

For an approved pension scheme, retirement ordinarily means cessation of service as an employee. A company director who gives up executive duties but remains a director has generally changed the nature of service rather than retired. Scheme documents should be construed in their legislative and approval context, unless the rules clearly confine service to a particular role.

An unauthorised payment from scheme funds remains a payment for the purposes of section 600 of the Income and Corporation Taxes Act 1988, even where it was made in breach of trust and remains traceable. Tax liability cannot depend on the recipient’s later willingness or ability to repay.

The Special Commissioner upheld an income-tax assessment on Mr David John Venables and a related determination against the trustees of the Fussell Pension Scheme. Lawrence Collins J allowed their appeals under section 56A(1) of the Taxes Management Act 1970.

The Revenue appealed. The principal issue was whether Mr Venables had retired when he ceased his executive role but remained a director. The secondary issue was whether unauthorised payments made in breach of trust should be treated as no payment for tax purposes.

The appeal was allowed unanimously. Chadwick LJ gave the judgment, with Potter LJ and Peter Gibson LJ agreeing.

1. Construction of the scheme. Pension scheme documents must be read in the legislative setting in which approval was sought. Chadwick LJ applied the approach stated in Mettoy Pension Trustees Ltd v Evans and others [1990] 1 WLR 1587. The scheme’s reference to retirement therefore had to be understood consistently with the statutory concepts governing approved schemes.
2. Meaning of retirement. Under section 26(1) of the Finance Act 1970, retirement meant cessation of service as an employee, not merely a change in the nature of service. Since an employee included a company director, service continued while the director remained in office. Mr Venables had therefore not retired by giving up his executive duties. The scheme rules did not confine his relevant employment to executive service, and the payments were not authorised under schedule F or the applicable rules.
3. Unauthorised payments. Section 600 of the Income and Corporation Taxes Act 1988 applied where a payment to or for the benefit of an employee was made from approved-scheme funds and was not expressly authorised by the rules. A payment made in breach of trust remained a payment for this purpose while the money was traceable. The proposed test based on the recipient’s accountability and subsequent ability or willingness to repay would make tax liability depend on post-payment events and would defeat the provision’s purpose.
4. Hillsdown distinguished. The reasoning in Hillsdown Holdings plc v Inland Revenue Commissioners [1999] STC 561, concerning section 601, was accepted in its statutory context. It did not govern section 600, where the unauthorised nature of the payment was the circumstance creating the charge. The assessment and trustees’ determination therefore stood. The respondents were ordered to pay the Revenue’s costs in the High Court and Court of Appeal.

• Court of Appeal — On 18 September 2002, the Revenue’s appeal was allowed and the order of Lawrence Collins J was reversed.
• Chancery Division — On 14 June 2001, Lawrence Collins J allowed the taxpayers’ appeals against the Special Commissioner’s decision.
• Special Commissioners — On 13 November 2000, the assessment on Mr Venables and related determination against the trustees were upheld.