Irving v HM Revenue & Customs

For the purposes of section 595(1) of the Income and Corporation Taxes Act 1988, “pays a sum” is not confined to paying money. Although its more natural meaning is payment of a sum of money, statutory context may require a wider construction. The provision therefore covers an employer’s transfer of non-cash assets, including shares, into an unapproved retirement benefits scheme with a view to providing relevant benefits. Treating cash and assets of equivalent monetary value differently would make no commercial sense and would frustrate the legislative policy. The appeal was dismissed.

John Leslie Irving appealed from an order of Blackburne J dismissing his appeal against a decision of the Special Commissioners. The proceedings concerned an amendment to his 1996/97 self-assessment, following his employer’s transfer of quoted shares into an unapproved retirement benefits scheme. The value of the shares was treated as income under section 595(1) of the Income and Corporation Taxes Act 1988. Blackburne J’s decision is reported at [2007] EWHC 147 (Ch). The central issue was whether the statutory expression “pays a sum” included the transfer of non-cash assets, or was confined to payment of money.

The Court of Appeal unanimously dismissed the appeal. Rimer LJ gave the reasons, with which Maurice Kay and Sedley LJJ agreed.

1. Construction of the phrase. The more natural meaning of “pays a sum” is payment of a sum of money. That meaning is not conclusive. The statutory context may require a wider interpretation where the narrower construction would produce an absurd result or conflict with the legislative purpose.
2. Application to the scheme. Section 595(1) of the Income and Corporation Taxes Act 1988 was concerned with funding unapproved retirement benefits schemes. There was no rational basis for distinguishing cash funding from the transfer of assets with an equivalent monetary value. The phrase therefore included the transfer of shares into the scheme with a view to providing relevant benefits.
3. Related provisions. The court considered the historical focus on funded schemes in section 19 of the Finance Act 1947. It also relied on the connected use of “sum paid” in section 76(3) of the Finance Act 1989, which the appellant accepted could include a transfer of shares. Those phrases had to bear the same meaning. The operation of section 596(3) further showed that “payment” could not be confined to money where that would create an absurd result. Express wider definitions of “payment” in sections 599A, 600 and 601 did not require a narrower construction of section 595(1), since those provisions addressed different matters.
4. Later benefits. Section 596A was not a reason to treat non-cash funding as escaping the earlier charge. Its lump-sum exemption was directed to avoiding double taxation where a later lump sum represented funding already taxed under section 595(1). The court expressed no view on whether “lump sum” included a one-off distribution of shares.

• Court of Appeal (Civil Division): In [2008] EWCA Civ 6 , unanimously dismissed the appeal.
• Chancery Division: Blackburne J dismissed Mr Irving’s appeal against the Special Commissioners’ decision, in [2007] EWHC 147 (Ch).
• Special Commissioners: dismissed the appeal against the amendment to the self-assessment.