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Tribunal rules in favour of timeshare boss

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14th Aug 2012
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A gift of $2m from a former shareholder to an ex-employee of a timeshare property company after the sale of the company should not be taxed as earnings from the individual's employment, a tribunal has ruled.

The tribunal decided that the appellant, Colin Collins, had not been negligent in failing to report the payment on his tax return or seek tax advice.

In the case (Colin Collins versus the commissioners for HMRC, TC02088), Collins, a former managing director at a timeshare company, Resort Condominiums International (RCI), was given a personal cheque for $2m from his previous employer, Christel DeHaan, four years after he had resigned from his role with the RCI and after Mrs DeHaan had sold RCI.

In 1998, Mrs DeHaan invited Collins to her hotel room in Las Vegas and gave him the cheque along with a personal letter which said that she "would like to recognize in a special way the people whose special contributions helped make RCI such a great company."

HMRC argued that the $2m receipt had been emoluments of Collins' employment, for two main reasons: it was designed to compensate for what he might have received in that "bonus round" had he been employed at that point; and the payment was made to encourage Collins - who had subsequently been re-employed by RCI - to make greater efforts in turning around the fortunes of the UK subsidiary.

The tribunal decided that the gift receipt was a tax-free gift and did not constitute "emoluments for the past employment" for various reasons, including that payment was gratuitous and a "gift" (there was no expectation that Mr Collins would do anything at all) and that the payment was wholly disproportionate to Mr Collins's past salary.

The tribunal decided that Collins was not negligent. It noted that he was not an expert in financial matters and everything that he received as an employee would have been taxed automatically at source under the PAYE system and the national insurance regulations. He had no experience of Self Assessment tax returns.

Law firm Burges Salmon said although the generosity of the gift in the case was unusual it was not uncommon for gifts to be made to employees at or around the time a company is sold. “Whether such gifts amount to the rewards of employment or a gift motivated by genuine friendship will depend very much on the facts of the case,” it said.

Although Collins was vindicated by the tribunal, he could have saved himself plenty of sleepless nights had he and Mrs DeHaan taken advice at the time of the gift, Burges Salmon added.

Replies (9)

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By The Limey
14th Aug 2012 13:16

It seems like more evidence (see Redknapp) that there needs to be a change in tax law so that there is a presumption that monies received from employers, previous employers and persons connected with them relate to employment.

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By Roland195
14th Aug 2012 15:10

A Vegas hotel room?

Interesting that HMRC never tried a Donna Asutaits style argument that the £2m cheque was for "services rendered" in the hotel room.

 

 

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By ireallyshouldknowthisbut
15th Aug 2012 09:23

.

*sharp intake of breath* when I spotted the company involved.

I wonder if his "special contributions" extend to putting his call centre offshore to get around UK cold calling laws.

 

 

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By mydoghasfleas
15th Aug 2012 12:21

Steady on

Regardless of what you think about the individual, the employer, the owner and their practices, this is purely and simply a tax matter and should be judged on that basis.

The law is fairly clear here so I do not see why there needs to be a presumption.  I bought my staff ice creams last week out of my money not from the business.  Should we presume the ice cream is employment connected?  It's not a question of scale, 50p or $2,000,000, it's down to law.

Here HMRC felt it was employment related the taxpayer did not.  The Tribunal judge, who weighed all the evidence decided in favour of the taxpayer.

Yes, I think Redknapp got away with it.  If not his dog was a financial mastermind.

Asutaits was earning, there was no dispute.  Did they get her for not registering for VAT as well?  $2,000,000 not £2,000,000.

I do not like sharp practices with offshore call centres either but if the special contribution was doing that HMRC's arguments must have been really poor to have lost.

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By dominovision
15th Aug 2012 13:07

Sounds like a personal gift to me.

There was no contractual obligation to 'pay' this individual based on his previous employment contract and it came out of the personal monies of the owner of the company.

Furthermore, HMRC tried to take (steal) £1,011,857 of this £2m, ridiculous, outrageous and simply unfair tax levels/fines.

 

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By justsotax
15th Aug 2012 13:39

hmmmm....

not illegal....although one wonders why the ex MD wasn't rewarded at the time (indeed why did he 'resign'...)....and why then re-employed....golden handshake?

 

It may well be down to the law.....but scale does have an impact.....(see how you fair when run over by a car going 31mph vs one going 50 mph in a 30 area....) 

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By ireallyshouldknowthisbut
15th Aug 2012 13:47

.

The point being really is how much reliance you place on the words coming out of the exec's mouths given the day job is hard selling.

It seems highly suspect to me if you read the case, with IRS all over the nature of the payments to start with, the money being stashed offshore and no tax paid on the interest. The ex-owner in the middle of an earn out etc etc.

This isnt really the story of  Mr Whiter than White getting a gift and the evil HMRC trying to tax him on it.

Its the story of a murky set of deals in a murky business and trying to work out the tax effect. Put it this way if the donee got a tax deduction (which they didnt ever fathom out) it would appear odd that its not taxed on the other side, although I appreciate tax isn't logical like that.

 

 

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By carnmores
15th Aug 2012 18:01

good luck to him

we need far more generosity in life

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By justsotax
15th Aug 2012 19:34

I can just imagine
that he was on the bones of his @rse at the time....bless

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