First-tier Tribunal (Tax)

[2010] UKFTT 349 (TC)

TC00631

Appeal reference: TC/2009/10651

Seafarers’ Earnings Deduction – whether Appellant’s vessel was an offshore installation – yes – no entitlement to SED – appeal dismissed

FIRST-TIER TRIBUNAL

TAX

                                                  MR GRAHAM GOULDSON                                 Appellant

- and -

THE COMMISSIONERS FOR

                                      HER MAJESTY’S REVENUE AND CUSTOMS         Respondents

Tribunal:        Lady Mitting (Judge)

Sitting in public in Manchester on 19 July 2010

Miss Amie Gouldson LLB for the Appellant

Mr. Bryan Morgan for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.           The appeal before the tribunal is Mr. Gouldson’s appeal against the closure notice  issued under section 28 TMA 1970 for 2006 / 2007 and discovery assessments raised under section 29 TMA for 2004 / 2005 and 2005 / 2006.  The point in issue is Mr. Gouldson’s entitlement to Seafarers’ Earnings Deduction (“SED”) for the three years in question.

2.           Mr. Gouldson claimed £55,540 for 2004 / 2005; £62,169.40 for 2005 / 2006 and £71,786.80 for 2006 / 2007.  The Commissioners accepted an entitlement of £38,193.26 for 2004 / 2005 and £10,049.30 for 2005 / 2006 and £16,324.12 for 2006 / 2007.  It was not in dispute that during the three years in question Mr. Gouldson was “a seafarer” and that in December 2004 to December 2006 he was engaged on the vessel Edda Fjord.  However the Commissioners’ argument is that during the period December 2004 to October 2005 and January 2006 to 10 December 2006, the Edda Fjord was fitted out with accommodation units thus excluding itself from the statutory definition of a ship and barring a claim for SED for those periods.  The periods and the amounts are not in dispute, the point of issue being the principle.

The legislation

3.           Section 29 Taxes Management Act 1970 states that:

“29(1) If an officer of the Board or the Board discover, as regards any person (the taxpayer) and a year of assessment –

(a) that any income which ought to have been assessed to income tax, or chargeable gains which ought to have been assessed to capital gains tax, have not been assessed, or

(b) that an assessment to tax is or has become insufficient, or –

(c) that any relief which has been given is or has become excessive

The officer or, as the case may be, the Board may, subject to subsections (2) and (3) below, make an assessment in the amount, or further amount, which ought in his or their opinion to be charged in order to make good to the Crown the loss of tax.”

“29(3) Where the taxpayer has made and delivered a return under section 8 or 8A of this act in respect of the relevant year of assessment, he shall not be assessed under subsection (1) above –

(a) in respect of the year of assessment mentioned in that subsection; and

(b) in the same capacity as that in which he made and delivered the return,

Unless one of two conditions mentioned below is fulfilled.”

“29(4) The first condition is that the situation mentioned in subsection (1) above is attributable to the fraudulent or negligent conduct on the part of the taxpayer or a person acting on his behalf.”

“29(5) The second condition is that at the time when an officer of the board –

(a) ceased to be entitled to give notice of his intention to enquire into the taxpayer’s return under section 8 or 8A of this Act in respect of the relevant year of assessment; or

(b) informed the taxpayer that he had completed his enquiries into that return;

The officer could not have been reasonably expected on the basis of the information made available to him before that time, to be aware, of the situation mentioned in subsection (1) above.”

4.           Section 378(1) ITEPA 2003 states:

            “A deduction is allowed from earnings from an employment as a seafarer if: -

            (a) the earning are relevant taxable earnings,

(b) the duties of the employment are performed wholly or partly outside the United Kingdom, and

            (c) any of those duties are performed in the course of an eligible period.”

5.           Section 384 ITEPA 2003 gives the meaning of employment ‘as a seafarer’:

“In this chapter employment “as a seafarer” means an employment (other than Crown employment) consisting of the performance of duties on a ship or of such duties and others incidental to them”.

6.           Section 385 ITEPA 2003 gives the meaning of “ship” stating:

            “In this chapter “ship” does not include an offshore installation.”

7.           Section 837(C) ICTA 1988 gives the meaning of “offshore installation”:

“837c(1) For the purposes of the Corporation Tax Acts unless the context otherwise requires, “offshore installation” means a structure which is, is to be, or has been, put to a use specified in subsection (2) while –

(a) standing in any waters

(b) stationed (by whatever means) in any waters, or

(c) standing on the foreshore r other land intermittently covered with water.”

“837c(2) The uses are:

(a) use for the purposes of exploiting mineral resources by means of a well;

(b) use for the purposes of exploration with a view to exploiting mineral resources by means of a well;

(c) use for the storage of gas in or under the shore or the bed of any waters;

(d) use for the recovery of gas so stored;

(e) use for the conveyance of things by means of a pipe;

(f) use mainly for the provision of accommodation for persons who work on or from a structure which is, is to be, or has been, put to a use specified in any of paragraphs (a) to (e) while –

(a) standing in any waters

(b) stationed (by whatever means) in any waters, or

(c) standing on the foreshore or other land intermittently covered with water.”

The issues before the tribunal

(a)   Was HMRC correct in its classification of the Edda Fjord as an offshore installation during the period when the accommodation units were fitted?

(b)  Was Mr. Gouldson entitled to claim SED during those periods?

(c)   Was HMRC correct in issuing a closure notice for 2006 / 2007 and discovery assessments for 2004 / 2005 and 2005 / 2006 disallowing SED during those periods?

The Appellant’s evidence

8.           During all relevant periods Mr. Gouldson served on board the Edda Fjord.  The Edda Fjord’s official classification is as a Multipurpose Platform Supply Vessel.  The official designation goes on to list various roles including that of flotel, construction work, cable laying and repairing, pipe transport and supply duties.  During the relevant periods, the Edda Fjord worked in conjunction with a floating storage tank called the Bonga off the Nigerian coast and a semi-submersible rig called the Thunderhorse in the Gulf of Mexico.  The role of the Edda Fjord was similar in respect of each.  Both the Bonga and the Thunderhorse were in effect tanks for the storage of oil, both being anchored to the sea bed.  Both were only in the process of construction during the relevant periods.  During these periods, the Edda Fjord had accommodation units attached to it which housed several hundred construction workers who were working on the construction of the tanks.  These workers included for example electricians, plumbers, pipe layers etc.  The construction work on the tanks continued round the clock and the role of the Edda Fjord was to provide accommodation for the several hundred construction workers and ferry them backwards and forwards to the tank.  This was sometimes done by way of a gangway but more often by basket transfer.  Because construction work continued round the clock, the ferrying of the construction workers was a fairly constant activity.  When not actually involved in moving men, the Edda Fjord, which was never anchored or in any way physically attached to the tanks, circled around the tank.  Mr. Gouldson told us, and so I find, that in addition to housing the construction workers, a certain amount of construction work was itself carried out on the Edda Fjord which had its own small workshop.  Mr. Gouldson did not seek to exaggerate the amount of work carried out on board, stressing that it was not by any means continual and was only small pipe fitting jobs.  He thought that on the Bonga job, the construction work on board would probably be for between one to three days a month involving a maximum of ten men and would be something slightly less than that on the Thunderhorse – only a couple of small jobs were done on board.  In addition, another role of the Edda Fjord was to pipe fresh water onto the Bonga and the Thunderhorse and to other support and accommodation vessels in the area.  This would be done probably once a week.

9.           In support of its case, HMRC provided copy internet articles confirming the use of the Edda Fjord as providing “accommodation support duties” on the Bonga project and “offshore accommodation” on the Thunderhorse project.  The Lloyds List carried an article referring to the chartering of the vessel as a floating accommodation unit.  The Commissioners accepted that the accommodation units were temporary and were removed when the projects were completed.

Submissions and conclusions 

10.        I will deal firstly with whether the Commissioners were entitled to issue their closure notice and discovery assessments.  Miss Gouldson argued that her father had done nothing wrong and had completed his tax returns in a perfectly proper manner, supplying all the information for which he was asked at the correct time.  It was wrong that, given the large amount of money at stake, HMRC were entitled to reopen what she saw as closed years.  Whilst totally accepting that no blame whatsoever attaches to Mr. Gouldson, I reject Miss Gouldson’s submission.  HMRC had accepted and processed in a perfectly routine manner Mr. Gouldson’s tax returns but in June 2008 opened a perfectly routine and random enquiry into the return for the year ended 5 April 2007.  It was only when they opened the enquiry that they discovered that Mr. Gouldson was based on the Edda Fjord and it was only then that they discovered the nature of the projects with which the Edda Fjord had been involved during the relevant periods.  In line with Section 29 TMA 1970,and in particular Section 29(5) I find that HMRC were entitled to take the actions which they did and they could not have been reasonably expected, on the basis of the information previously made available to them, to be aware of the full facts.

11.        HMRC’s case was that during the periods when the accommodation units were fitted, the Edda Fjord ceased to be classified as a ship but as an offshore installation.  The SED is only payable to a seafarer whilst performing duties on a ship and once his vessel ceases to be so classified then his entitlement to the deduction also ceases.  Miss Gouldson argued that the Edda Fjord was a multipurpose vessel and its roles were many and varied, including that of a flotel but in no way exclusively.  Even when used as a flotel, the official classification of the vessel never changed.  It was never classified as an accommodation unit, always retaining its classification as a multipurpose vessel.  The vessel was never anchored or attached to the tanks but at all times remained free-standing and mobile.  It did not accommodate oil workers but only construction works on the oil tanks.

12.        Miss Gouldson referred the tribunal to a case Spowage and others v HMRC TC00110.  In this case, HMRC had also refused claims to SED because the seafarers on board the relevant ships were in their view working on an “offshore installation” which was involved in providing accommodation and also in maintenance and repair activities.  The tribunal found in favour of the Appellant on the basis that the relevant vessels were not engaged “mainly” in providing accommodation but that they were used as multi-purpose maintenance and construction support vessels.

13.        I do not accept that this case is on all fours with Spowage.  In Spowage the vessel carried out a number of listed tasks including lifting of plant and machinery into position, on-board fabrication, construction and assembly work, workshop sandblasting and storage facilities, diving operations and accommodation.  The Edda Fjord, on the other hand, was used in the main as an accommodation unit with only a very small amount of construction jobs being carried out on board, these involving no more than a handful of the workforce and only one or two days per month.  I find that the Edda Fjord was used “mainly for the provision of accommodation”.  The next point which arises is for whom the accommodation was provided.  Miss Gouldson argued that as it wasn’t provided for the rig workers, but only for construction workers, who were not themselves involved in mineral exploitation, the vessel remained a ship.  However Section 837c(2)(f) provides that the accommodation should be “for persons who work on or from a structure which is, is to be, or has been, put to one of the specified uses” (my emphasis added).  It is quite clear that the Bonga and the Thunderhorse, although only under construction at the time, were destined to be put to use for the purposes of exploiting mineral resources.  The role carried out by the Edda Fjord during the relevant periods therefore, in my view, falls within the statutory definition of an offshore installation and as such Mr. Gouldson is prevented from claiming his SED during those periods.  His appeal therefore has to fail and is dismissed.

14.        One point arose during the hearing as to certain negotiations which had been taking place between the Treasury and Mr. Gouldson’s union.  Miss Gouldson and her father were of the view that the Treasury had issued amended guidelines which would have the effect of relaxing the way in which the Commissioners applied the legislation.  Mr. Morgan was not aware of any such relaxation but undertook to look into this and if he found that there had been further guidance issued he would take that up with the Appellant and the tribunal.

15.        The appeal is dismissed.

The Appellant has a right to apply for permission to appeal against this decision in accordance with rule 39 of the Rules.  The parties are referred to “Guidance to accompany a decision from the First-Tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

LADY MITTING

JUDGE
Release Date: 27 July 2010