HM Revenue & Customs v Barclays Bank Plc & Anor

For a benefit to be given in connection with past service under section 612(1) of the Income and Corporation Taxes Act 1988, it need not be calculated by reference to the length or value of that service, nor constitute a deferred reward. The phrase is broad and requires a factual connection assessed in the statutory context. A lump sum paid in substitution for a benefit provided to retired employees because of their former employment may retain the necessary connection with past service. The fact that the substitute payment is calculated by reference to other matters, including use of the original benefit, does not sever that connection.

HMRC appealed from a decision of the Special Commissioner allowing appeals against PAYE determinations concerning approximately £6.5 million paid by Barclays to former employees and surviving spouses. The payments compensated recipients for the termination of a free tax-return preparation service previously provided to eligible pensioners.

The Special Commissioner allowed the appeals on the basis that the determinations had been made against the wrong party and, alternatively, that the payments were not relevant benefits given in connection with past service under section 612(1) of the Income and Corporation Taxes Act 1988. The appeal concerned both the propriety of deciding the conceded employer issue and the construction of “in connection with past service”.

1. Jurisdictional issue. The Special Commissioner had jurisdiction to decide the issues raised by the appeals. Whether the Trustees were the employers for PAYE purposes was an issue on the merits, albeit potentially decisive, rather than an issue going to jurisdiction.
2. The Special Commissioner erred in deciding that issue after the Trustees had made a clear concession and the parties had not prepared evidence on the mechanics of payment. A tribunal may invite reconsideration of a concession, particularly where fairness requires it, but if the concession is maintained it should not pursue the issue itself. The wider submission that a tribunal can never allow an appeal on an unrelied-upon point was left undecided.
3. Construction of section 612(1). The phrase “in connection with” is a broad formulation. Whether the required connection exists is a question of fact assessed in the context of the statutory provision. The provision does not require a benefit to be a deferred reward or to be calculated by reference to past service.
4. The free tax service was provided to retired employees and their spouses because of their employment-related status, and was therefore connected with past service. The payments were made in substitution for that service and as compensation for its termination. That substitution supplied the necessary connection with past service.
5. The calculation of the payments by reference to use of the service, the complexity of tax affairs and age did not alter the conclusion. “Service” in section 612(1) means service as an employee of the relevant employer and does not connote any particular length or value of service. The payments were therefore relevant benefits under a retirement benefit scheme and chargeable under section 596A.
6. The appeal was allowed. A decision that HMRC was entitled to make formal determinations against the Trustees under regulation 49 of the Income Tax (Employment) Regulations 1993 was substituted for the Special Commissioner’s decision. Remission was unnecessary.

• High Court (Chancery Division): appeal from the Special Commissioner allowed; the decision was set aside and a substituted decision was made.
• Special Commissioner: appeals against three PAYE determinations for 1997-98, 1998-99 and 1999-2000 allowed on jurisdictional and substantive grounds.