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Paul Dunstall Organisation Limited v Hedges [1999] STC (SCD) 26

Category Technical Articles
AuthorTechnical Department
Extract from an article by Adrian Rudd (of PricewaterhouseCoopers, Tax Adviser's representative on Technical Committee) regarding Paul Dunstall Organisation Limited v Hedges [1999] STC (SCD) 26 (published in the July 2000 issue of Tax Adviser.) The Institute wrote to the Inland Revenue expressing concerns about the potentially far-reaching implications of the Special Commissioners’ decision, which held that the provision of a ‘perquisite’ represents a payment for PAYE purposes.

The Institute was aware that the Revenue viewed Dunstall as a case that involved a sum of money subject to PAYE, albeit a sum met by the transfer of an asset, and that in their view PAYE would not apply to transfers of assets in cases which did not involve a sum or where the asset was not a readily convertible asset. The Institute also took comfort from the publication of a new edition of the employer’s pack since the decision in Dunstall, which does not depart from previous practice in any way to reflect the decision.

However it is difficult to reconcile this view with the words used by the Special Commissioners, and there seems to be nothing in their reasoning which limits the application of PAYE to ‘sums of money’ met by the transfer of an asset.

The Inland Revenue replied as follows:

The Revenue has long held the view that the transfer of an asset may involve a ‘payment’ under TA 1988, s203(1), provided the transfer is in satisfaction of a pre-existing entitlement to a monetary sum.

In the Dunstall case, the bonus resolution stated:

‘It was resolved that a bonus of £800,000 be paid to Mr Dunstall... on condition that the said bonus be paid and accepted in the form of (and in no other form than) land transferred from the company to Mr Dunstall...’

This resolution clearly entitled Mr Dunstall to the monetary sum of £800,000 and once this pre-existing entitlement was established, the form in which it was subsequently satisfied was of no material relevance – entitlement to the monetary sum represented a ‘payment’ by virtue of s203(1). The Special Commissioners upheld this view.

Consequently in my view the Dunstall decision does no more than confirm long-established Revenue practice on this point. I appreciate that the decision may be read to imply that a ‘payment’ could be interpreted more widely to include payments of money’s worth such as the provision of benefits-in-kind.

‘It is not the Revenue’s intention to adopt this approach and, as you have recognised, the employer’s pack distributed since the Dunstall decision does not include any change of practice on this issue.

The Revenue advised that these comments do not apply where the readily convertible assets rules are in point or where the Ramsay principle is at issue.

Technical Department
020 7235 9381


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