Hepburn v Revenue & Customs [2013] UKFTT 445 (TC) (20 August 2013)

Hepburn v Revenue & Customs [2013] UKFTT 445 (TC) (20 August 2013)

The Tribunal found that the substance and commercial effect of the arrangements was that Ms Hepburn was never entitled to the consultancy fee as an individual; the fee was always intended to be paid to Torglenn Limited, which was subsequently incorporated and received the fee. The accounting treatment in both Envireneer and Torglenn's accounts reflected this, and HMRC had accepted these accounts for tax purposes. There was no contractual, equitable, or statutory basis for treating the fee as Ms Hepburn's personal income. Accordingly, she was not liable to income tax on the consultancy fee, and no statutory penalty arose.

Citation
[2013] UKFTT 445
Parties
Appellant: Maureen Hepburn; Respondents: The Commissioners for Her Majesty’s Revenue & Customs
Jurisdiction
United Kingdom
Judgment Date
20 August 2013
Procedural Posture
Income Tax Appeal / First Tier Tribunal (tax) Substantive Decision
Outcome
Appeal allowed
Legal Topics
Income Tax Liability, Corporation Tax, Consultancy Services, Unincorporated Companies, Accounting Treatment, Generally Accepted Accounting Practice, Statutory Penalties
Tax Law Company Law Income Tax Liability Corporation Tax Consultancy Services Unincorporated Companies Accounting Treatment Generally Accepted Accounting Practice +1 more

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Parties

Maureen Hepburn

Appellant

The Commissioners for Her Majesty’s Revenue & Customs

Respondents

Procedural Posture

Income Tax Appeal / First Tier Tribunal (tax) Substantive Decision

Legal Issues

  1. 1 Whether consultancy fee paid to a newly formed company for services performed before incorporation is taxable as income of the individual (Ms Hepburn) or the company (Torglenn)
  2. 2 Whether Ms Hepburn was contractually or by unjust enrichment entitled to the consultancy fee as an individual and liable to income tax
  3. 3 Whether the fee should be treated as miscellaneous income of Ms Hepburn

Ratio Decidendi

The Tribunal found that the substance and commercial effect of the arrangements was that Ms Hepburn was never entitled to the consultancy fee as an individual; the fee was always intended to be paid to Torglenn Limited, which was subsequently incorporated and received the fee. The accounting treatment in both Envireneer and Torglenn's accounts reflected this, and HMRC had accepted these accounts for tax purposes. There was no contractual, equitable, or statutory basis for treating the fee as Ms Hepburn's personal income. Accordingly, she was not liable to income tax on the consultancy fee, and no statutory penalty arose.

Court Disposition

Appeal allowed

Orders

  • The discovery assessments for income tax and national insurance against Ms Hepburn are discharged.
  • No statutory penalty is due from Ms Hepburn in respect of the consultancy fee.