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| 14A.1.2 Hochstrasser v Mayes7 |
The taxpayer worked for ICI Ltd, a large concern with factories in different parts of the UK. To encourage its employees to remain in the service of the company if asked to move to a different part of the country, the company promised to make good any loss incurred by the employee through a fall in the value of a house which the employee owned. This scheme was restricted to married employees and also to houses not exceeding £2,000 in value. On being moved from Hillhouse to Wilton, the taxpayer sold his house in Fleetwood for £1,500; it had originally cost £1,850. ICI reimbursed him this loss of £350 and the Revenue sought to assess him on the £350; it failed. The Revenue argued that all payments by employers to their employees ‘as such’ were taxable unless they were payments in return for full consideration in money or money’s worth other than for services under the employment. The House of Lords rejected this approach unanimously. It was not disputed that the company would not have made this payment if the taxpayer had not been an employee and it was clear that the company thought that it was going to benefit by having a more settled workforce if a scheme like this were in operation. Moreover, because the taxpayer had a perfectly standard wage, it could not be said that this was disguised remuneration. The House8 held that the payment was not in respect of his services to the company but rather to compensate him for the loss which he had sustained, and was therefore not taxable. It may be noted that the company was getting the best of both worlds: the sum was not taxable in the hands of its employee but was deductible by the company in computing its profits. |
What about other possible payments? As the Revenue’s counsel put it, to be recouped a loss by someone else is plainly a profit. If these profits escaped tax, which profits would not? It was agreed that if the employee had suffered a bereavement and the company had seen fit to grant him something from its benevolent fund such payment would not have been taxable.9 However, if the employee had been compensated for a loss on an investment on the Stock Exchange it is not obvious that he would have escaped tax in respect of such a payment, although this has since been held to be so.10 Only Lord Denning gave reasons why an indemnity of the |