INCOME TAX – Schedule E - deduction for security services – whether services provided to meet a special threat to Appellant’s personal physical security – yes – whether threat arose wholly or mainly by virtue of his employment – yes – whether the provider (Hanson Plc) had the meeting of the threat as its sole object  - yes - whether benefit to the Appellant consisted wholly or mainly of an improvement of his personal physical security – yes – alternatively whether (in respect of the first two years) there was a loss of tax attributable to the negligent conduct of the Appellant – yes - appeal allowed – FA 1989 s 50; TMA 1970 s36   

THE SPECIAL COMMISSIONERS

	THE RT HON LORD HANSON 
Appellant

	- and -

	BERYL MANSWORTH
(H M INSPECTOR OF TAXES)

Respondent

			SPECIAL COMMISSIONERS: DR NUALA BRICE
EDWARD SADLER

Sitting in public in London on 9-13 February 2004

Kevin Prosser QC, instructed by Messrs Roiter Zucker Solicitors, for the Appellant

Ingrid Simler of Counsel, instructed by the Solicitor of Inland Revenue, for the Respondent

© CROWN COPYRIGHT 2004

DECISION

The appeal
1.	The Rt Hon Lord Hanson (the Appellant) appeals against assessments to income tax under Schedule E for the years 1989/90 to 1995/96 inclusive and amendments to self–assessments for the years 1996/97 and 1997/98. 

2.	The appeal relates to personal security services provided for the Appellant by Hanson Plc during the period in which the Appellant was the executive chairman of Hanson Plc. The Appellant accepted that the provision of the security services was a benefit in kind within the meaning of section 154 of the Income and Corporation Taxes Act 1988 (the 1988 Act) and that the cost of providing the benefit was to be treated as an emolument of his employment. However he argued that, under section 50 of the Finance Act 1989 (the 1989 Act), he was entitled to a deduction from those emoluments of an amount equal to the cost of providing the security services. Alternatively, the Appellant argued that the time limits for making the assessments for the two years 1989/90 and 1990/91 had expired and that the extended time limits in section 36 of the Taxes Management Act 1970 (the 1970 Act) did not apply because the loss of income tax was not attributable to his negligent conduct or the negligent conduct of a person acting on his behalf.   

The legislation

3.	The relevant parts of section 50 of the 1989 Act provide:

“50(1)	For the purposes of this section a security asset is an asset which improves personal security, and a security service is a service which improves personal security. 

(2)	In a case where-
(a)	a security asset or security service is provided for an employee by reason of his employment, or is used by an employee, and
(b)	         the cost is wholly or partly borne by or on behalf of a person (the provider) other than the employee, 
in charging tax under Schedule E on the emoluments from the employment a deduction shall be allowed of an amount equal to so much of the cost so borne as falls to be included in the emoluments of the employment. …

(4)	        Subsection (2) … above shall not apply unless the asset or service is provided for or used by the employee to meet a threat which-
(a)	is a special threat to his personal physical security, and
(b)	         arises wholly or mainly by virtue of the particular employment concerned.

(5)	Subsection (2) … above shall not apply unless the provider has the meeting of that threat as his sole object in wholly or partly bearing the cost or reimbursing the expenses (as the case may be).

(6)	Subsection (2) … above shall not apply in the case of a service unless the benefit resulting to the employee consist wholly or mainly of an improvement of his personal physical security.” 

4.	         The parties agreed that if section 50 applied then it operated automatically and that there was no need to make a claim.

5.	At the relevant time section 34 of the 1970 Act provided that the ordinary time limit for making an assessment to tax was not later than six years after the end of the chargeable period to which the assessment related.  However, section 36(1) provided:

“36(1)	        An assessment on any person … for the purpose of making good to the Crown a loss of tax attributable to his fraudulent or negligent conduct or the fraudulent or negligent conduct of a person acting on his behalf may be made at any time not later than twenty years after the end of the chargeable period to which the assessment relates.”

The issues

6.	Thus the issues for determination in the appeal were:

(1)	whether the security services were provided for or used by the Appellant to meet a threat which was a special threat to his personal physical security within the meaning of section 50(4)(a);

(2)      whether the threat arose wholly or mainly by virtue of the particular employment concerned within the meaning of section 50(4)(b);

(3)	         whether Hanson Plc had the meeting of that threat as its sole object in bearing the cost within the meaning of section 50(5);

(4)         whether the benefit to the Appellant consisted wholly or mainly of an improvement of his personal physical security within the meaning of section 50(6); and, alternatively

(5)          	whether, in respect of the years 1989/90 and 1990/91, there was a loss of income tax attributable to the negligent conduct of the Appellant or the negligent conduct of a person acting on his behalf within the meaning of section 36 of the 1970 Act. 

The evidence

7.	The documentary evidence included a draft statement of agreed facts dated 15 January 2004 which had to be read with the comments of the Inland Revenue contained in a letter dated 23 January 2004.; an appeal bundle containing the assessments and returns; a correspondence bundle; a bundle of witness statements; a bundle of Appellant’s documents; five bundles of newspaper articles which made some reference to the Appellant and\or Hanson Plc with a smaller bundle of articles written by the Appellant; and two bundles of documents called “The Chronology of the Conflict”.  We were also given copies of five books. These were: “Hanson: A Biography” by Alex Brummer and Roger Cowe (Mr Rosling emphasised that this was not an approved biography and that he did not agree with all the contents); “The IRA” by Tim Pat Coogan; “The Enemy Within” by Martin Dillon; “Armed Struggle – A History of the IRA” by Richard English; and “A Secret History of the IRA” by Ed Moloney. We were also each given a copy of a videotape which we viewed in the evening. The tape recorded the annual general meeting of Hanson Plc in the last year in which the Appellant was chairman of its board of directors.

8.	Ms Simler rightly urged us to be cautious about the weight to be given to the hearsay evidence in the newspaper articles and the books about the Appellant and the IRA. Proceedings before the Special Commissioners are governed by The Special Commissioners (Jurisdiction and Procedure) Regulations 1994 SI 1994 No. 1811. Regulation 17(6) provides that we may receive evidence of any fact which appears to us to be relevant to the subject matter of the proceedings notwithstanding that such evidence would be inadmissible in proceedings before a court of law; regulation 17(4) provides that, in assessing the truth and weight of any evidence we may take account of its nature and source and the manner in which it is given. Some of our findings of fact concerning the Appellant and the IRA come from these sources and we have found them helpful to the extent that they record many matters which are matters of public knowledge or historical record. Otherwise we have relied upon the tested evidence of the witnesses. 

9.	Oral evidence was given on behalf of the Appellant by:

Mr Jonathan Giles Ashley Azis, Solicitor; Mr Azis was the company secretary of Hanson Plc between 1995 and 1997 and a director in 1997 and 1998;

Sir Gordon Booth KCMG CVO; from March 1975 to May 1980 Sir Gordon was both British Consul General in New York and Director General of Trade Development and Inward Investment in the United States of America. During these years he promoted the United Kingdom (including Northern Ireland) as a location for American investment. In 1980 he joined Hanson Plc and became a non-executive director in 1981 serving until 1988; 

Mr Alan Hagdrup who was a director of Hanson Plc from 1974 until his retirement in 1992; 

Mr Peter Charles Nievens; Mr Nievens retired from the Metropolitan Police in 1982 with the rank of Deputy Assistant Commissioner; from the same year he was appointed as a security consultant by Hanson Plc; this was not a full-time appointment; Mr Nievens advised from time to time as required. He retired from this appointment in 1995; 

Mr Derek Norman Rosling CBE FCA; Mr Rosling joined Wiles Group (later Hanson Plc) in 1965 and was vice-chairman for many years until he retired in 1994. Between 1994 and 1997 he was a senior consultant to Hanson Plc; and  

Mr Martin Gibbeson Taylor; Mr Taylor is a Chartered Accountant and joined the Wiles Group (later Hanson Plc) in 1969. Shortly thereafter he became the company secretary. Later he became a director and eventually vice-chairman retiring in 1995. 

10.	Oral evidence was given on behalf of the Inland Revenue by Mr Raymond Jeffery Hill, an Officer of the Inland Revenue.

11.	Expert evidence was given on behalf of the Appellant by Mr Kenneth George Churchill-Coleman; Mr Churchill-Coleman was an Officer in the Metropolitan Police from 1950 to 1995 when he retired with the rank of Commander; from 1985 to 1992 he was the Officer in charge of the anti-terrorist branch at New Scotland Yard with responsibility for all aspects of the fight against terrorism; he was also the police co-ordinator for some aspects of national security.

12.	Expert evidence was also given on behalf of the Appellant by .Mr David Nigel Vardon Churton, an expert on terrorist threat assessment and Chief Executive Officer of Control Risks Group Limited (Control Risks), an international business risks consultancy which carried out a threat assessment and security surveys relating to the Appellant for Hanson Plc in August 1990.

The facts 

13.	From the evidence before us we find the following facts. 

Hanson Plc

14.	Hanson Plc was originally called Wiles Group. The Wiles Group obtained a Stock Exchange listing in 1964. At that time the chairman of the company was Mr George Wiles; the company was based in East Yorkshire; and it supplied services to the agricultural industry. In 1965 Mr Wiles resigned and sold his shares. The Appellant became the chairman and Mr Gordon White (later Lord White) became vice-chairman. At that time the company made profits of about £100,000 before tax. In 1969 the company changed its name to Hanson Trust Limited and then to Hanson Plc. The change of name in 1969 was a deliberate strategy to align the company with the Appellant so that he became synonymous with the company. In 1973 Lord White moved to the United States of America and, after five years, almost half of the group’s pre-tax profits were earned there. 

15.	The corporate philosophy of Hanson Plc was to expand by acquisition; to delegate the management of individual trading subsidiaries to their own executive teams; and to maintain a very small central team which exercised financial control and developed relationships with shareholders, bankers and the City of London. The trading subsidiaries kept their own names and the goodwill associated with those names was not only retained but emphasised. The notepaper of the trading companies, however, indicated that they were members of the Hanson group of companies. 

16.	In 1978 Hanson Plc expanded into Northern Ireland and acquired Henry Campbell (later Barbour Campbell) and then, in 1979, Lindustries. We were also told that Hanson Plc owned a company called Walter Allen but were not told of the dates of acquisition and disposal of that company. Hanson Plc was a substantial employer in Northern Ireland and Mr Rosling estimated that it would have had about 4,000 employees in Northern Ireland in 1989. Sir Gordon Booth became a non-executive director of Hanson Plc in 1981. In 1981/82 Sir Gordon was appointed a member of a working party to report on the Northern Ireland shipbuilders, Harland and Wolf. In 1986 he was appointed a member of the International Fund for Ireland to represent Northern Ireland because of his role at Hanson Plc. All seven members of the Fund were regarded as subject to terrorist risk and had police protection, or military protection, when on business. From 1985 to 1988 Hanson Plc was a leader in a consortium of companies formed to mine the extensive lignite coal deposits in Northern Ireland and to build a private sector financed lignite fuelled power station; Sir Gordon Booth was nominated by the Appellant to be a member of the board of Antrim Power Company Limited responsible for that project. Hanson Plc held interests in Northern Ireland until 1989 but during that time the Appellant did not visit Northern Ireland.    

17.	Hanson Plc has been described as “one of the leading exponents of corporate takeovers” and an “acquisitive conglomerate”. It acquired and disposed of other companies on a regular basis. Its policy was to have close links with the party of government, in the interests of its business activities. It was a major donor to the Conservative Party. In 1987 the contribution was £117,000 and, in that year, Hanson Plc was the second largest donor. In the election year a contribution of £115,000 was made with about half that sum being paid in non-election years. Hanson Plc also made contributions of up to £20,000 each year to the Centre for Policy Studies which was described as “Mrs Thatcher’s favourite think-tank”. The company was perceived as being close to the Conservative government and as a result in a somewhat privileged position as compared with other companies. One example occurred in 1985 when it acquired a 15% stake in Westland Helicopters; the perception was that the acquisition had been made not for commercial reasons but for political reasons in order to assist Mrs Thatcher. In 1986 Hanson Plc acquired the Imperial Group for £2.5 billion and there was a view that the Government’s decision not to refer this bid to the Monopolies Commission, at a time when other bids for other companies were being referred, was a recognition by the Government of the assistance given with Westland. 

18.	On 19 January 1988 Hanson Plc celebrated its 25th birthday with a Dinner at the Guildhall. Mrs Thatcher was the guest of honour and, in her speech, was full of praise for personal qualities and business achievements of the Appellant.  

19.	In 1986 Hanson Plc acquired Smith Corona, the United states typewriter group for £1 billion. In 1989 Hanson Plc acquired Consolidated Gold Fields for £3.5 billion and Peabody, the United States’ biggest coal producer, for £1.2 billion. By 1990 it had disposed of parts of the Imperial Group for £2.3 billion and parts of Smith Corona for £1.6 billion. The retained parts were made more efficient which made the company unpopular in some quarters.  

20.	There were also rumours of possible bids. In 1985 there were rumours of bids for Sears International, BP, Boots and Goodyear; in 1986 for Morgan Grenfell, GEC and Sears; and in 1988 for Texaco, Midland Bank and Blue Circle. In 1990 there was a rumour that Hanson Plc was to take a stake in ICI and this rumour caused some concern. In 1990 there was also a rumour that Hanson Plc was going to buy Powergen which idea was very unpopular with the Labour Party who accused the Conservative Government of planning to sell Powergen to a major supporter of the Conservative Party. In 1991 there was a failed bid for ICI.  

21.	Thus by 1990 Hanson Plc was frequently in the news and was regarded as highly prominent and very well known. It was in the top ten of the largest UK companies; it had a market value of over £10 billion; and employed about 80,000 employees world wide. It was widely advertised with well-known actors appearing in the advertisements. It was associated in the public mind with the Conservative Party and Mrs Thatcher.       

22.	The board of directors of Hanson Plc met quarterly. There were no committees  Day to day management was in the hands of the executive directors who all reported directly to the Appellant as executive chairman. At the relevant time the Appellant initiated most of the major decisions; decisions which did not require a board resolution would be discussed among the executive directors (who all worked near each other and who would walk in and out of each others’ offices) so that all would be aware of any proposal and have a chance to comment on it before it was implemented. 

The Appellant

23.	The Appellant was born in 1922 and from 1965 was chairman of Hanson Plc. He had very few other interests. He was referred to in newspapers as “Britain’s leading businessman”. He became identified in the public mind with Hanson Plc. In newspaper articles the actions of the company were frequently attributed to the Appellant. He was referred to as an “arch-capitalist” a “corporate raider”; a “buccaneer”; “an asset-stripping tyrant”; “the personification of wheeler-dealing Thatcherism”; and “friend and financier of the Tory Party”. He was also said to have “one of the best known faces in British business”. Although he personally did not make any contributions to the Conservative Party he was regarded as a close associate of that Party because of the contributions paid by Hanson Plc. The Appellant also frequently wrote letters to, and articles in, newspapers praising the Conservative Party for what he considered its business-friendly policies and urging his readers to keep that Party in power. On the other hand the Appellant established good communications with all parties of government and was knighted in 1976 when Sir Harold Wilson was Prime Minister. 

24.	As chairman of Hanson Plc the Appellant, with Lord White in the United States, took all the major decisions. He had very close control over what Hanson plc did and was its spokesman on many occasions, not only by way of writing letters and articles for the newspapers and the press but also in giving interviews. His position as chairman gave him access to Mrs Thatcher. He received a peerage in 1983 and was described as one of Mrs Thatcher’s favourite businessmen. He was awarded the title of Capitalist of the Year in 1983 and again in 1986. He was awarded the title of Businessman of the Year in 1989. He was very frequently identified with, and treated as the personification of, Hanson Plc.

25.	Apart from his role as chairman of Hanson Plc the Appellant avoided personal publicity. We were indebted to Mr Azis for a comprehensive survey he had made of 1,300 newspaper articles between 1985 to 1990 which mentioned the Appellant or Hanson Plc.. This survey led Mr Azis to conclude; (1) that nearly all of the articles and references were to Hanson Plc, its share price and activities or to the Appellant in connection with his work as chairman of Hanson Plc; (2) that the Appellant was frequently symbolised in the articles as the company and on many occasions an article, instead of referring to Hanson Plc, would refer to the Appellant as if he were the company; (3) that there were almost no references to the Appellant’s social life and only four short references to his private life including one reference to the fact that for a short time in the 1950s he was engaged to Audrey Hepburn; (4) that the in-depth articles were almost exclusively concerned with the Appellant in his role as chairman of Hanson Plc and in regard to the affairs of Hanson Plc; (5) that the references to the Appellant’s association with Mrs Thatcher stemmed from his role as chairman of Hanson Plc or from the provision of funds by Hanson Plc to the Conservative Party; and (6) that there were no references to the fact that the Appellant was a high-profile figure in either political of financial terms other than in his role at Hanson Plc. There was nothing in any article read by Mr Azis which indicated that  the Appellant had ever given a talk about, or expressed views on, Northern  Ireland. There were references to his high salary but these occurred within the context of his being chairman of  Hanson Plc. 

26.	The Appellant married in 1959 and has two children. One of these, Robert, received some mention in the social pages of the newspapers from time to time. He was also a director of Hanson Plc for some time until about 1997.
 
27.	In the United Kingdom the Appellant had a house in London and a house in the country. His country house was not grand or well known. It was in an isolated position surrounded on all sides by open farmland. The garden and paddock extended to twenty-nine acres and there were outbuildings include stabling, garage and storage. Within the grounds there was a helicopter pad. The nearest occupied houses were two farms a mile away. The Appellant also had a town house and a country house in the United States where he spent up to six months in total each year. Within the United Kingdom he sometimes travelled by helicopter and sometimes by car; when he travelled by car he was driven by a chauffer. Both his United Kingdom houses were alarmed against burglars. The Appellant had an employment contract with Hanson Plc dated 30 August 1991 and it was not a term of that contract that Hanson Plc should provide the Appellant with security services.

1970s to 1990 - The IRA campaign 

28.	From the 1970s the IRA had the aim of waging “economic” warfare and by the end of that decade there was a policy of shooting industrialists and businessmen, especially those who played a prominent role in the economy of Northern Ireland or, as it was referred to, “economic imperialism”. All the businessmen who were attacked at this time were in Northern Ireland itself. The IRA were opposed to “big business, multi-nationalism, and all manifestations of imperialism and capitalism”. 

29.	From 1973 onwards the IRA conducted a bombing campaign on the mainland of Great Britain. We were given a copy of a Written Answer for 4 March 1996. Mr Rooney had asked the Secretary of State for the Home Department on what dates terrorist incidents ascribed to the IRA had taken place in the British mainland for each year since 1980. The reply covered seven pages with about twenty-five incidents on each page. In 1973 there were four bombing incidents and a West German industrialist was abducted by the IRA.  1974 saw eleven more bombings, including those at Guildford, Woolwich and Birmingham. The bombing continued throughout 1975 including the bombing at the Hilton Hotel and the planting of a bomb on the car of Sir Hugh Fraser a Conservative MP..Another bomb was placed underneath the car of Sir Edward Heath. Mr Ross McWhirter, who had offered a reward for the capture of other bombers, was shot dead. The campaign on the mainland ceased in 1976 although Mr Christopher Ewart Biggs, the British Ambassador in Ireland, was killed in a landmine explosion in Dublin on 21 July. There were more bombs in 1977 and in that year three businessmen were shot dead in Derry and Belfast. In 1978 there were bombs in five cities in Great Britain on the same date (17 December).  In 1979 Mr Airey Neave, Conservative MP and spokesman on Northern Ireland, was killed at the House of Commons and Lord Mountbatten was killed in Ireland; he was described by the IRA as a “prestige target”. In 1981 there was a bomb attack on the Chelsea Barracks and also on the London home of Mr Michael Havers, the Attorney-General. In 1982 there were two bombs in Hyde Park. In 1983 there was a bomb at Harrods. In 1984 the Grand Hotel at Brighton was bombed during the Conservative Party Conference. There were threats against civilians in 1985 and 1986 and in 1987 there was a bomb at Enniskillen. The threats continued in 1988 and 1989; the Inglis Barracks in London were bombed on 1 August 1988 when one person was killed and eight injured. In 1989 there three four attacks on army personnel, one on 20 February at a barracks in Shropshire; one on 22 September at the Royal Marines School of Music at North Barracks, Deal, Kent when eleven soldiers were killed; and one on 18 November at Married Quarters in Colchester. 

1979-1990  – the first security arrangements provided for the Appellant 

30.	From 1979 onwards, after the acquisition of the companies in Northern Ireland, the directors of Hanson Plc, and Mr Rosling in particular, were concerned about the growth of terrorism and the serious risk of an attack on the Appellant. In the words of Mr Rosling “such an attack would have had a catastrophic effect on the share price and fortunes of” Hanson Plc. In the words of Mr Taylor “such an appalling event would have had an enormous detrimental effect on Hanson Trust which was a company synonymous with Lord Hanson”.  In evidence which we accept Mr Taylor also said that “if, for instance, our chairman … had been killed I could see 25% of the market value of the company being knocked off straightaway which is something like £2.5 billion”. He thought that there was “a substantial risk” of such an event. Accordingly, in 1979 Hanson Plc recruited Mr Michael Doran as its security manager and in 1982 recruited Mr Nievens as security consultant after his retirement as Deputy Assistant Commissioner of the Metropolitan Police. Advice was given to the directors about the need for burglar alarms and parking cars in garages instead of leaving them outside. The executive directors had burglar alarms at their houses but these were not installed or paid for by Hanson Plc. However, Hanson Plc did pay for an annual maintenance contract for these alarms.

31.	In 1985 Mr Nievens reviewed company policy on the safeguarding of the members of the board of Hanson Plc in the light of the kidnap that year of the principal of the Heineken Corporation in Holland and the murder of Mr George Hesse, Chairman of the Renault company, in Paris. After discussing the matter with the Chief Executive Mr Nievens visited an establishment which had become the major dog training centre for the armed forces. Personal security was first provided for the Appellant by Hanson Plc in May 1987. At that time the security consisted of one man (a doghandler) and a dog. In January 1989 the doghandler was promoted to be a supervisor and an additional doghandler was employed. Thus by 1990 two doghandlers, who worked under the supervisor, were employed but they did not provide cover for twenty-four hours a day, seven days a week. The dogs and doghandlers were located at or near the Appellant’s country house as it provided accommodation for exercise and training. The doghandlers lived in a town nearby. The doghandlers also had other duties; for example they might provide security for annual or extraordinary general meetings of Hanson Plc. 

1990 – more IRA attacks

32.	In 1988 raids on IRA safe houses in Clapham and West Belfast uncovered a list of 235 politicians, generals, judges and other prominent targets whom the Provisional IRA proposed to assassinate. The fact that a person was not known to be included on an IRA list did not mean that he was not on such a list or that he would not be the subject of an attack. Mr Ian Gow (who was murdered on 30 July 1990) was not known to be on any list. On the other hand three prominent businessmen (but not including the Appellant) were on the Clapham list.  

33.	There were a number of IRA attacks in 1990. On 25 June 1990 a bomb exploded at the Carlton Club (referred to as “that Tory citadel”) killing twenty people. In the same month Lord McAlpine’s former home was bombed by the IRA who were relying on out of date information and did not know that Lord McAlpine had moved. On 20 July 1990 there was an attack on the Stock Exchange causing massive damage. On 30 July 1990 there was an attack on, and the murder of, Mr Ian Gow MP who was a close supporter of Mrs Thatcher and was involved in Northern Irish politics and the Unionist cause. He was killed when a device exploded underneath his motor car. On 6 August 1990 a device was discovered and defused at the former home of Lord Armstrong who was the Cabinet Secretary. In October 1990 there was an attack, or an attempted attack, on the home of Sir Charles Tidbury, who between 1978 and 1984 was chairman of Whitbread Brewers which made an annual donation to the Conservative Party. In 1986 Sir Charles had become the chairman of the William and Mary Tercentenary Trust which organised celebrations in 1988 to mark the 300th anniversary of the time when William of Orange and his English wife Mary were invited to assume the Crown. It was later discovered that Sir Charles was on an IRA hit list and his association with the Trust was thought to be one possible explanation.  

July 1990 – The brown Volvo incident

34.	Meanwhile, on Sunday evening 29 July 1990, two men and a woman were stopped entering the grounds of the Appellant’s country house; later they were confirmed as reporters and a camera team from ITN. The next day, which was the same day as the murder of Mr Ian Gow, an event occurred which was referred to throughout the hearing as “the brown Volvo incident”. We were unsure as to why it was called that because the motor car concerned appears to have been either a Honda or a Triumph. Nevertheless we will follow the practice of the witnesses and refer to the incident as the brown Volvo incident. What happened was that three people in a brown motor car pulled up at a village close to the country house of the Appellant. The car contained two men and one woman. One of the men spoke to a resident of the village and asked her, in a broad Irish accent, where the Appellant lived. With remarkable presence of mind the resident deliberately pointed in the wrong direction and, after she had heard the report of Mr Gow’s death, informed the police. The resident was unable to give a clear description of the people she saw and thought that the motor car might have been a Honda or a Triumph. The people she saw did not match the description of the ITN team. The police then contacted Hanson Plc.

July 1990 – the police reserve list

35.	After the brown Volvo incident Mr Nievens visited the local police station near the Appellant’s country house and saw the superintendent and a sergeant who was introduced to him as having special responsibilities relating to terrorism in the police authority for the region covering the Appellant’s country house. The police authority then put the Appellant on a reserve list. The nature of this list was described in a letter dated 28 March 2003 from the Assistant Chief Constable Specialist Operations for that authority. The letter said that the police authority had an operation order which dealt with the security of premises and individuals who might be potential targets for terrorists. Criteria for inclusion on the operation order included either premises or persons assessed as under a significant threat as a priority target, or persons deemed to be at risk because of special circumstances. Although the Appellant was not considered to meet these criteria (and was not therefore within the scope of the operation order) his country house address had been added to the reserve list for this operation order in 1990. The reserve list was regularly reviewed and was for persons for whom a concern for security had arisen and for whom the level of threat might increase if circumstances were to change. The Appellant had been placed on the reserve list as a result of an unresolved suspicious incident in July 1990 (this was a reference to the brown Volvo incident). The letter continued:

“Although this incident did not warrant the inclusion of Lord Hanson and his address on Security Service or Home Office threat assessment lists at the time, it was [police authority] policy to inform the local police area of the incident, person or premises concerned in case of any further incidents which might indicate an increased level of threat.

As a result of this action the police would not have taken any additional security measures, but police officers made contact with Lord Hanson’s staff and obtained details of the location and contact arrangements. These details were included in a contingency order drawn up by the local police area in case of any further incidents and were updated annually.”

36.	Because of the Appellant’s presence on this reserve list the police responded to some later incidents with armed response vehicles and, on one occasion, with a helicopter.

August 1990 – the threat assessment and security surveys 

37.	When the police reported the brown Volvo incident to Hanson Plc it caused great concern. Hanson Plc then considered the adequacy of the security being offered to directors and particularly to the Appellant.  On 2 August 1990, immediately after the brown Volvo incident, Mr Churton of Control Risks was invited to attend a meeting with the security officers of Hanson Plc (Mr Doran and Mr Nievens). Later he met the Appellant and Mr Taylor. Mr Churton’s note of the meeting recorded that concerns about security had arisen following the assassination of Mr Gow, the current high media profile of the Appellant both in respect of the rumoured interest in the acquisition of Powergen and his friendship with Mrs Thatcher, and the brown Volvo incident. After discussion it was agreed that Control Risks should prepare a threat assessment for the Appellant and his family and security audits for the Appellant’s London and country houses. The next day Control Risks confirmed their proposal to “prepare and write a threat assessment” to cover the Appellant and his family, senior executives of Hanson Plc and Hanson Plc itself. The threat assessment would cover “particularly the Provisional IRA and other sources of threat which may be identified within the United Kingdom”. The proposal would also include a security audit for the Appellant’s London and country houses which would “use the above threat assessment as the basis on which to examine the existing security”.   

38.	Later in August 1990 the formal threat assessment report was sent by Control Risks to Hanson Plc. It had been prepared by a Mr Cheney, a director of Control Risks at that time. The purposes of the assessment were to identify if Hanson Plc and its executives were potential targets for the Provisional IRA and to make recommendations on security audit to ensure that protection was adequate to counter the threat. The report stated that the Provisional IRA campaign in Britain had intensified during the last three months. The IRA had widened its target base to include economic targets like the London Stock Exchange and any target that could be construed as representing the British establishment. In particular, attacks had concentrated on individuals and buildings closely associated with the Conservative Government and Mrs Thatcher. The IRA had stated that Lord McAlpine was attacked because of his connections with the Conservative Party, his close friendship with Mrs Thatcher and his fund raising activities as Party Treasurer.  Mr Ian Gow had also been attacked for the first two reasons and because he had a close personal involvement in the situation in Northern Ireland. The Provisional IRA attacked easy targets and were known to reconnoitre their targets thoroughly. Hanson Plc was a high profile company and was identified with the Appellant who was its chairman. Recent publicity regarding Powergen had identified the Appellant as a keen supporter of the Conservative Party and Mrs Thatcher, although this had been true for many years. Although there were many more direct and higher priority targets, and although the Appellant and Hanson Plc were not considered as prime Provisional IRA targets, the Provisional IRA at that time were more likely than before to include the Appellant in their target list of British establishment figures. The other directors of Hanson Plc did not hold the same attraction. The Provisional IRA favoured the use of bombs with timing devices either attached to vehicles or planted near property. It was thought that vehicles at, and the buildings of, the Appellant’s houses were particularly at risk. It would never be known if the brown Volvo incident was a reconnaissance but, in the absence of other explanations, it would be best to assume that it was. All existing security measures should be reviewed particularly at the Appellant’s two houses. 

39.	On 13 August 1990 Control Risks sent to Hanson Plc its security survey of both of the Appellant’s houses. In evidence which we accept Mr Churton told us that Control Risks was not asked to look inside the house. We therefore conclude that the security surveys were not directed to the risk of theft. The report considered whether to recommend the strengthening of perimeter security at the Appellant’s country house by the addition of a three metre high galvanised and painted palisade fence but concluded that it would be completely out of character with the outstanding beauty of the property and so should be considered as an option only if the threat assessment indicated a much higher level of danger in the future. The report contained a number of recommendations. At the country house these included: two further dog handlers to provide additional cover and relief capacity; further security guards to man a control post to monitor CCTV and radio communications; the establishment of a control post by the main gate; and a hand held detector for explosive devices. On 13 September 1990 Control Risks sent a bill for their services in preparing the threat assessment and the security surveys to Hanson Plc who paid it. Following that advice Hanson Plc decided to increase the security provided for the Appellant.

August 1990 – the recommendations are implemented

40.	By 19 August 1990 the recommendations were being implemented. New doghandlers were being recruited to bring the total to eight dogs and eight doghandlers to provide cover at the Appellant’s country house for twenty-four hours each day for seven days each week. The dog patrols did not cover the whole 29 acres but did cover an inner perimeter surrounding the house and other buildings. Also, arrangements were being made for the installation of the CCTV (although this was somewhat delayed). The total number of security officers would then be eight doghandlers and an additional two or three guards to handle the control point gate and the CCTV control. We saw the instruction book for the security men at the Appellant’s country house. This was seventy pages long and indicated that the security service was run in a very professional manner. The men involved only undertook security work. The Appellant had domestic staff to undertake domestic work. No money was spent by Hanson Plc on general improvements to the property other than the items recommended by Control Risks. 

41.	Although the security service was provided at all times, including times when the Appellant was not at his country house, it was not provided in order to protect the property but because the expert advice was that, in order to be effective against the planting of timed or other bomb devices, protection of personal security required guards at all times. The purpose of the service was to protect the Appellant from a terrorist attack, and particularly an attack from the IRA. Hanson Plc regarded the Appellant as a valuable asset of the company which had to be protected because the Appellant was generally perceived as Hanson Plc and any harm to him would have an adverse effect on Hanson Plc and its share price.  We accept the evidence of Mr Hagdrup that he and the other executive directors were party to, and approved, of the arrangements made for security staff and dogs to protect the Appellant. This was “a matter of the company attempting to protect for itself and its shareholders, one of its most important assets. We were all aware that if there had been a successful attempt on Lord Hanson’s life at that time this would have had a catastrophic effect on the company and the market value of its shares.”   
	
42.	In addition to providing security at the Appellant’s country house, the doghandlers and the dogs sometimes patrolled the grounds of the house of Mr Robert Hanson which was about forty miles away. We saw a memorandum dated 4 November 1988 which indicated that a night patrol was carried out covering the two houses at least once a week.  We also saw a roster for a dog patrol in February 1997. This made it clear that in that month at Mr Robert Hanson’s house there were no full day or night patrols; there was one evening patrol; and there were five patrols each between 9.00 pm and 5.00 am. There were other rosters for January, November and December 1997. There was no other evidence about the extent of the patrols at Mr Robert Hanson’s house in that or other years. We accept the evidence of Mr Rosling that patrols were only carried out at Mr Robert Hanson’s house on special occasions or when the Appellant was staying there.  

Incidents after August 1990

43.	About six months after his first visit to the police in late July or early August 1990 Mr Nievens visited the local police station again to update them about the arrangements that had been made. We saw written records of nineteen suspicious incidents between 24 August 1992 and 8 January 1997 which occurred at the Appellant’s country house. (There may have been others which had not been recorded or where the records were not available.) For example, on 24 August 1992 several shots were heard from a field adjacent to the front gate; the shots were from a high velocity weapon and approximately one minute later assorted gun fire was heard. The security guard at the Appellant’s house contacted the police. The police arrived and a search was conducted by all available police units from neighbouring areas. An armed response vehicle was put on stand by. Another example occurred on 17 October 1993 when a man with a camera was observed in one of the water meadows. He left the property when he saw that he was being observed. The police were informed. Later the same day the man returned and identified himself as an environmental consultant who had been monitoring work carried out by the river authority. He said that he had been stopped by the police and apologised for causing the alert.  Another example of a suspicious incident occurred on 2 January 1994 when two high velocity shots were heard from the neighbouring woods. The police were informed and later a person was seen walking away carrying a rifle. A police helicopter arrived and started to sweep the area. In another incident a police armed response vehicle was sent; in another police dog units were sent, and in another police patrol cars were sent.    

44.	After the recommendations of Control Risks had been implemented in 1990 they remained in place until the Appellant retired. There was no formal written review of the arrangements and no further report was commissioned from Control Risks. After 1990 the IRA attacks continued with perhaps the most remembered being those on 10 Downing Street in February 1991 and on the Baltic Exchange in 1992. In 1991 there were also bombs at Victoria Station, London in February; at St Albans in November; in shops in Blackpool and Manchester on 8 December; in a London shopping centre on 14 December; at The National Gallery on 15 December; on a south London railway line on 16 December; and at London train stations on 23 December. In 1992 there were thirteen incidents; in 1993 eleven incidents; in 1994 six incidents and in 1995 three incidents. The cease fire ended on 9 February 1996 after which there were eight bombs in that year. We accept the evidence of Mr Rosling that the level of protection for the Appellant was kept under review but that, as nothing happened to reduce the risk, it was not thought necessary to seek further advice. In March 1996 another man and dog were recruited to raise the manning level to eight plus two more. Additional security equipment was also purchased “in view of recent mainland terrorist activity and local (bypass) protester activity”. We accept the evidence of Mr Rosling that the additional security services had nothing to do with the bypass protesters. They were provided specifically and solely as a precaution to reduce the risk of attack by armed terrorists. In 1997 a number of bomb warnings were given but an IRA ceasefire was announced on 20 July 1997. On 15 August 1998 the Real IRA planted a bomb at Omagh but announced a cease fire on 22 August 1998.  

The directors’ interests recorded in the minutes

45.	On 4 December 1991, at a meeting of the directors of Hanson Plc, the  directors’ interests in arrangements subsisting during the year ended 30 September 1991 were noted. It was recorded that the chairman and executive directors had, for business reasons, the servicing of security systems at their homes and the provision of security personnel for the personal protection of the chairman. It was recorded that it was in the company’s interest to ensure that adequate security arrangements were in place to protect the chairman and the executive directors. 

1997 – the Appellant retires

46.	The Appellant retired as executive chairman and as a director of Hanson Plc in 1997 when the security services provided for the Appellant by Hanson Plc were withdrawn. In 1999 he was removed from the police reserve list following a review by the Security Service at the request of the police authority. At that time the Security Service indicated that, while there was potential for the Appellant to be singled out for attack, there was no significant threat. 

The Appellant’s tax returns and the assessments

47.	The Appellant did not state on his tax returns for 1989/90 to 1995/96, or on his self-assessments for the years 1996/97 and 1997/98, that he had received any benefit from the security services provided by Hanson Plc between 6 April 1989 and 5 April 1998. Hanson Plc did not state on the P11D forms for 1989/90 to 1997/98 that they had provided any benefit to the Appellant in the form of security services. Between 16 December 1996 and 25 March 1998 discussions took place between representatives of the Appellant, Hanson Plc and the Inland Revenue and on 25 March 1998 the Inland Revenue made assessments under Schedule E in relation to the benefit of the security services it estimated that Hanson Plc had provided to the Appellant in the years 1989/90 to 1995/96. Thereafter further discussions took place and on 16 December 2002 the Inland Revenue notified the Appellant that they were amending his self- assessments for 1996/97 and 1997/98 on the basis that they did not include income in the form of security services provided by Hanson Plc. Those assessments and amendments to self-assessments are the subject of this appeal. 

Reasons for decision

48.	We consider separately each of the issues for decision in the appeal. 

Issue (1) – Was there a special threat?

49.	The first issue is whether the security services were provided for or used by the Appellant to meet a threat which was a special threat to his personal physical security within the meaning of section 50(4)(a).

50.	Section 50 of the 1989 Act had its beginnings in section 33 of the Finance Act 1977 which contained provisions for charging tax on the provision of living accommodation. However, section 33(4) provided that the section did not apply where, there being a special threat to the security of the employee, special security arrangements were in force and he resided in the accommodation as part of those arrangements. Section 50 itself also has to be considered within the context of the 1989 Act as a whole which includes section 112 which is the Schedule D equivalent of section 50. Section 112 gives a deduction of expenditure incurred in connection with the provision of a security service from the profits or gains of a trade, profession or vocation carried on by an individual or a partnership of individuals. That provision indicates that entitlement to the deduction is not confined to public or other employees but also extends to self-employed persons carrying on trades, professions or vocations.    

51.	We first have to decide whether the security services were used to meet a “threat”. We are of the view that that word should take its meaning from its context and should be given its normal and everyday meaning. The Shorter Oxford English Dictionary defines a threat as “a person or thing regarded as a likely cause of harm”. Another definition is “an indication of harm or danger”. Within the context of section 50(4) the threat has to be “met” by the security services provided. The Shorter Oxford English Dictionary defines “meet” as “to confront or oppose … or grapple with”. So the threat has to be  “met” with protection and section 50(6) indicates that, within the meaning of the section as a whole, the threat is to be met by improving physical security. For the Inland Revenue Ms Simler accepted that a threat could take the form of a declaration of intent to inflict harm or could be the indication of some imminent harm or could be a person or thing regarded as dangerous. Mr Prosser, on the other hand, did not agree that there had to be a declaration of intent to inflict harm; although he accepted that one meaning of the word “threat” could be “a statement or declaration of intent to do harm”, nevertheless, he argued that, within the context of section 50(4), the threat had to “arise” and a declaration of intent to do harm would not “arise”. 

52.	We adopt the third of Ms Simler’s meaning of the word “threat”, namely a person or thing regarded as dangerous. We accept that the Appellant was not a prime target of the IRA and that there was no evidence that he was on any IRA list. Also, he was not on the police authority’s operations order. However, the very nature of terrorism is that it appears to strike at random; targets are not usually notified in advance. A reasonable person, in deciding whether to provide or accept protection, has to have regard to all the circumstances including the profile of the type of person who is targeted. The Appellant met the profile of the type of person who could well be a target of the IRA. The IRA had already targeted high profile businessmen (although, with a few exceptions, not on the mainland of Great Britain); they had attempted to assassinate Mrs Thatcher and senior members of the Conservative Government in the Brighton bombing; and they targeted persons with some connection to Northern Ireland. The Appellant had a very high business profile as chairman of Hanson Plc; his company (with whom he appeared to be synonymous) was a major donor to, and well-publicised supporter of, the Conservative Party; he was a personal friend of Mrs Thatcher; and Hanson Plc had had business interests in Northern Ireland until as recently as 1989. Also there had been the brown Volvo incident which was unexplained but which Control Risks thought better to assume  was an IRA reconnaissance. In our view the combination of these circumstances meant that the reasonable person would conclude that the Appellant was a potential target of the IRA and therefore was under threat from the IRA. 

53.	We also have to decide whether the threat was “a special threat”. We are mindful of the guidance of the Court of Appeal in MacDonald v Dextra Accessories Limited [2004] EWCA Civ 22 at paragraph 63 that we should not fall into the trap of substituting a gloss for the statutory words and thereby attempting in effect to rewrite the statute. We therefore take the meaning of the words from their context and give them their normal and everyday meaning. Once again we rely upon the Shorter Oxford English Dictionary for the definition of special as “exceptional in quality or degree, unusual, out of the ordinary” and of “exceptional” as “of the nature of, or forming an exception, unusual, out of the ordinary”. So a special threat is one which is unusual or out of the ordinary. A threat from general criminal conduct would be an ordinary kind of threat but, for example, a terrorist threat targeted at a limited group of people with a particular profile would be unusual or out of the ordinary and therefore special. 

54.	We are of the view that there was a special threat to the personal physical security of the Appellant because the Appellant was a potential terrorist target. At the time the security services were first provided to the Appellant the IRA were targeting individuals on the British mainland including Mrs Thatcher, the Conservative Party and Mrs Thatcher’s friends and close supporters; they were also targeting members of the establishment (including those in the economy) and prestige buildings, institutions and other such targets on the mainland. The Appellant was a close and prominent supporter of Mrs Thatcher and the Conservative Party; he epitomised the business ethos of the day and was one of the most successful and high profile businessmen of the time so that an attack on him would rightly be regarded as an attack on both the political and the business/City establishments Although he was not the subject of a police operations order he was on a police reserve list and not every chairman of a public company was on such a list nor did every such chairman have armed response vehicles sent to incidents. 

55.	  In reaching our view we have relied upon the expert evidence of Mr Churchill-Coleman and Mr Churton. 

56.	Mr Churchill-Coleman expressed the opinion that the measures taken by Hanson Plc were sensible and necessary measures to take. The fundamental principle behind security and personal protection was to deter attack and the physical presence of the security team with its high visibility had had the desired result. Professional terrorists, particularly the Irish republican terrorists groups, always carried out a reconnaissance in an endeavour to avoid hard targets and to select soft options. There were a number of very real threats to the Appellant’s physical well-being arising directly as a result of his position as a high-profile head of his company. These fell into the three broad areas of political terrorism, environmental terrorism and kidnap and ransom. It was possible that the Appellant could have been a terrorist target.

57.	Mr Churchill-Coleman classified persons at risk under five headings. Head 1 would be someone who had a serious problem; head 2 would be someone under a fairly serious risk of attack by a terrorist; head 3 would be “certainly, yes, maybe”; head 4 would be a person of note but where there was nothing in the sources of information to indicate that he was at particular risk; and head 5 was the ordinary man in the street.  He would put the Appellant at head 4. He was close to the Prime Minister; he was a member of the establishment; he was a member of the House of Lords, and he had had business interests in Northern Ireland and was known there. However, he would not say that the Appellant was at a serious risk because he had never made pronouncements, or made known his political views, about Northern Ireland nor was there anything in the sources of information generally made available which indicated that he specifically was targeted. However, the level of risk could always change and the threat levels did vary.  

58.	Mr Churton had prepared a report in 2003 on the threat to the Appellant’s life posed by terrorism which report he put in evidence. His evidence was: 

(1) that specific attacks against the British elite were an important element of the IRA campaign on the British mainland between 1988 and 1997; 

(2) that there was an intensification of attacks against British political and economic targets in London around 1990 and that the IRA had established itself as a direct threat to individual members of the Conservative Government and its prominent supporters by 1988; 

(3) that an IRA target list of prominent figures included cabinet ministers, judges and security force figures and other prominent figures (including business figures); 

(4) that IRA statements indicated that the risk to potential targets extended beyond their active period in office or the position that originally placed them at risk; 

(5) that Mr Ian Gow’s death pointed to inadequacies in security for potential targets; 

(6) that a series of attacks were staged against the establishment and the City of London during 1988 to 1997; leading business figures who were also considered to be members of the establishment were potentially at risk of attack;

(7) that the Appellant in his role as chairman of Hanson Plc (the fourth largest company in the country at the time) was a prominent member of the pro- Conservative business elite; the company was a  major donor to the Conservative Party and the company’s business presence in Northern Ireland was likely to have contributed to his profile among republican sympathisers; 

(8) that the Appellant was at particular risk to his personal safety from 1988 to 1997 because of his prominence as chairman of Hanson Plc and his close association with Mrs Thatcher as there was a demonstrated risk to Mrs Thatcher’s close associates and supporters; 

(9) that if the IRA planned an attack on the Appellant the areas outside his offices and his country house would have been at the top of a list of possible areas in which to launch an attack; 

(10) that bomb attacks were the preferred IRA method of targeting individuals on the mainland during the relevant period; full-time security patrols would have been necessary to secure the personal physical safety of any individual deemed to be at risk of an attack; 

(11) that the brown Volvo incident was consistent with the reconnaissance strategy of the IRA prior to carrying out assassinations; it was not possible to conclude that the incident was IRA reconnaissance but there was a strong possibility that it was; and 

(12) that terrorist target selection was not an exact science and depended upon the balance between the news value of the target and the difficulty of bringing off a successful attack (that is, how good the security was).

59.	Mr Churton also gave evidence that the terrorist risk to the Appellant was considerably greater than to the average British executive; on a scale of 1 to 100 he would place Mrs Thatcher at 100, a cabinet minister at 90, the Appellant at between 60 and 70; and the ordinary member of the public at 0. He also told us that the IRA usually placed bombs under unprotected cars or left bombs with time delays or remote controls. Before 1990 there were opportunities for such bombs to be planted at the Appellant’s country house and that was why the security there had to be improved to provide constant cover, even when the Appellant was not in residence, so as to act as a deterrent. He emphasised that his company, Control Risks, did not sell equipment or provide security services; they only undertook threat assessments and surveys and gave advice. Control Risks had about 1,800 clients in the United Kingdom and the Appellant was one of only four clients in respect of whom Control Risks recommended this level of security as being probably commensurate with the threat. 

60.	        Ms Simler cast some doubt upon the independence of Mr Churton as an expert witness because his company (Control Risks) had advised Hanson Plc in 1990 and because the correspondence leading up to his appointment as a witness appeared to indicate that he was being asked to strengthen the Appellant’s case. We have borne these reservations in mind in deciding what weight to give to his evidence.   
61.	          Mr Churchill-Coleman was of the view that there were a number of very real threats to the Appellant’s physical well-being and that it was possible that the Appellant could have been a terrorist target. As already mentioned, he placed the Appellant as being at 4 on a scale of 1 to 5 where 1 was, say, members of the Royal Family and the Prime Minister and 5 was the ordinary member of the public. This indicates that Mr Churchill-Coleman was of the view that the threat to the Appellant was greater than the threat to the normal member of the public. Mr Churton was of the view that the Appellant was at particular risk to his personal safety from 1988 to 1997 and that the terrorist risk to the Appellant was considerably greater than to the average British executive. As already mentioned he placed the Appellant at 60 or 70 on a scale of 1 to 100 where 100 was the Prime Minister and 0 was the ordinary member of the public. Of his 1,800 clients in the United Kingdom the Appellant was placed in the first four of the highest risk. On the basis of this evidence it seems clear to us that, whichever scale is adopted, the threat to the Appellant was unusual or out of the ordinary and so “special”.  We have proceeded on the basis that the test of whether there was a special threat is an objective test. It is clear that Hanson Plc was concerned about the risk of a terrorist attack on the Appellant, and put in place the protection to meet the risk it identified. However, the object of Hanson Plc is relevant to the argument on section 50(5) but not to the argument on section 50(4)(a).    
  
62.	Arguments were put to us about the contents of Hansard. In Pepper v Hart [1993] AC 593 at 634D Lord Browne-Wilkinson said:

“In my judgment … reference to Parliamentary material should only be permitted as an aid to the construction of legislation which is ambiguous or obscure or the literal meaning of which leads to absurdity. Even in such cases references in court to Parliamentary material should only be permitted where such material clearly discloses the mischief aimed at or the legislative intention lying behind the ambiguous or obscure words.  In the case of statements made in Parliament, as at present advised I cannot foresee that any statement other than the statement of the Minister or other promoter of the Bill is likely to meet these criteria.” 

63.	In Regina v Secretary of State for the Environment, Transport and the Regions, Ex parte Spath Holme Ltd [2002] 2 AC 349 at 391H Lord Bingham added the principle that the Parliamentary statements to be relied upon should be clear and unequivocal and such as would almost certainly settle the matter immediately one way or another. In Melluish v BMI (No 3) Ltd [1995] 4 All ER 453 at 468e Lord Browne-Wilkinson re-emphasised that the only material which could properly be introduced were “clear statements made by a minister or other promoter of the bill directed to the very point in question in the litigation.”

64.	    We do not find the words in section 50(4)(a) obscure or ambiguous nor does the literal meaning lead to absurdity. We have been able to conclude that the security services were provided for the Appellant to meet a threat which was a special threat to his personal physical security relying upon the normal meanings of those words. However, in case we are wrong in that conclusion, we set out the relevant extracts from Hansard. 

65.	       The Finance Bill 1989 was debated in Standing Committee G on 23 May 1989 (Official Report Cols 213 – 221). What is now section 50 was then clause 47 and was introduced by Mr Norman Lamont. Mr Lamont said at Cols 213 and 214:

“The relief is of limited application and prevents charges to tax, chiefly under the benefits in kind rules, in certain exceptional circumstances. The Government recognise that for particular employees the particular work on which they are engaged may mean that they are exposed to a threat to their personal security from terrorists and other groups who resort to violence. In the face of such threat employers may incur expenditure in seeking to protect their employees. Where such expenditure results in a tax charge on the employee, the Government intend that it should be relieved. …  

I stress that the relief is intended to apply only in exceptional circumstances. There must be a “special threat” to the “personal physical security” of the employee emanating from his “particular employment”. One cannot simply obtain tax relief for normal security burglar alarms or for floodlighting one’s house. It must be a specific threat that arises from one’s employment. It is intended that the relief should go only to those who face a real threat to their person and that such threat is directly linked to their work. Such circumstances are most likely to occur where the nature of a person’s employment means that he is a potential target for the activities of terrorists and other similar extremist groups.  

The relief will not cover expenditure for security measures against the sort of general criminal threat which all citizens may face to one degree or another; nor where expenditure is incurred primarily in meeting a threat to property; nor where the perceived threat is unconnected with a person’s employment. Any intention on an employer’s part to reward his employee by meeting security expenditure will disqualify it.”

66.	Later in the debate, at Col 219, Mr Neil Hamilton asked whether a particular individual would have to prove that threats had been issued against him or others in similar circumstances and Mr Lamont replied that the person would not have to prove the threat but that the Inland Revenue would obviously have to be satisfied. The debate then moved to clause 111 (now section 112 of the 1989 Act) where Mr Lamont said (Col 221):

“The threat must be a special threat – that is to say, it has to be a threat of a kind which is somehow greater and more serious than would be faced by the generality of individuals in a similar line of business. The relief is aimed at those to whom there is a special threat through their work from the activities of terrorists, extremists and other groups of people who might resort to violence. … The new rule will ensure that relief is due notwithstanding the fact that there is an element of private benefit and notwithstanding the fact that the expenditure may also benefit the individual’s own family or household.”  

67.	       If we had needed the assistance of Hansard we would have reached the same view. We consider that the Appellant was exposed to a threat to his personal security from terrorists. It was a special threat because it was greater and more serious than would be faced by the generality of individuals. The security measures were not put in place to meet a general criminal threat nor were they incurred primarily in meeting a threat to property. There is no need to prove that a particular threat had been issued against the Appellant or others in similar circumstances.   

68.	Our conclusion on the first issue in the appeal is that the security services were provided for, and used by, the Appellant to meet a threat which was a special threat to his personal physical security within the meaning of section 50(4)(a).

Issue (2) – Did the threat arise wholly or mainly by virtue of the particular employment?

69.      The second issue is whether the threat arose wholly or mainly by virtue of the particular employment concerned within the meaning of section 50(4)(b);

70.	We first consider the meaning of the word “arises” in section 50(4)(b). The parties agreed that this was an objective test and did not depend on the subjective belief of either the employer or the employee. We next turn to the meaning of “by virtue of”. The Shorter Oxford English Dictionary contains a definition of “by virtue of” as “in consequence of”. That meaning is confirmed by section 377(1)(a) Income Tax (Earnings and Pensions) Act 2003 (the 2003 Act) which replaced section 50 of the 1989 Act and which used the phrase “because of the employment”. When considering the reference to “the particular employment” one has to focus on the actual job held by the employee and ask, having regard to all the circumstances, whether the threat arose because of that job. 

71.	      We accept the evidence of Mr Rosling that the Appellant’s high profile arose only by virtue of his name and his role in Hanson Plc. His fame arose from his role as chairman of Hanson Plc and not for any other reason. During the years under appeal he did not have any other directorships apart from a family owned company. He was not a leading member of the House of Lords. 

72.	We also are of the view that the only reason why the Appellant could have been a terrorist target was because he was the executive chairman of Hanson Plc and because of the way in which he did that particular job. His only prominence was as chairman of Hanson Plc. There was a causal connection between the job and the threat and the job was the sole or main cause of the threat arising. Ms Simler argued that, if there were any threat, it was because of the Appellant’s support of, and association with, Mrs Thatcher and not by virtue of his employment. We do not agree. The overwhelming weight of evidence leads to the conclusion that the Appellant lived and moved and had his being as chairman of Hanson Plc; all he did was in that capacity; it was in order to promote the company that he associated with politicians and it must not be forgotten that he was knighted while Sir Harold Wilson was Prime Minister. We do not think that he would have been such a friend of Mrs Thatcher if he had not also been a highly successful leader of a highly successful private enterprise company. The Appellant was also very well-known, rich, a member of the House of Lords and had had business interests in Northern Ireland but only because he was chairman of Hanson Plc and for no other reason.   

73.	Our conclusion on the second issue in the appeal is that the threat to the Appellant arose wholly or mainly by virtue of his employment as executive chairman of Hanson Plc. 

Issue (3) –Was the meeting of the threat the sole object of the provider? 

74.        	The third issue in the appeal is whether Hanson Plc had the meeting of that threat as its sole object in bearing the cost within the meaning of section 50(5).

75.        For the purpose of section 50(5) it is the employer’s belief that is relevant. The evidence from executive directors of Hanson Plc (Mr Hagdrup, Mr Rosling and Mr Taylor) was that they believed that the Appellant was a potential terrorist target and their sole object in providing the security services was to meet the threat to the Appellant. We accept this evidence and so find. It is also relevant that the decision in 1990 to increase the dog patrols was made following the recommendations of the Control Risks reports (which included the threat assessment) that, at that time, the provisional IRA “were more likely to include the Appellant in their target list of British establishment figures”.    

76.	Our conclusion on the third issue is that Hanson Plc did have the meeting of the threat as its sole object in providing the security services for the Appellant.

Issue (4) – Did the benefit to the Appellant consist wholly or mainly of an improvement to his personal physical security? 

77.       	The fourth issue in the appeal is whether the benefit to the Appellant consisted wholly or mainly of an improvement of his personal physical security within the meaning of section 50(6).

78.       Ms Simler argued that because the Appellant was in the United States for six months each year, and also had a London house, the round-the-clock dog patrols were for the protection of the property of the country house from a generalised criminal threat and not for the personal physical security of the Appellant. Further, the patrols at the house of Mr Robert Hanson pointed to the conclusion that the service was provided to protect the two houses. On the evidence before us, however, we find that Hanson Plc did not provide the security services for the protection of the Appellant’s country house because that already had burglar alarms and protection against theft. We were impressed by the evidence of Mr Churton that, when undertaking the security audit in 1990, Control Risks was not asked to look inside the house; if the protection of the property had been an object in providing the security service then it would have been necessary to look inside the house. We also accept Mr Churton’s evidence that, having regard to the weapons used by the IRA (time-delay planted bombs), round-the-clock surveillance, operated whether or not the Appellant was in residence, was the most effective means of providing personal physical security for the Appellant. On the evidence before us we find it difficult to reach any view about the patrols at the house of Mr Robert Hanson. Mr Rosling suggested that these were only carried out on special occasions or when the Appellant was staying there. That is most probably true. However, all we have to decide is whether the benefit to the Appellant was wholly or mainly an improvement of his personal physical security. If the benefit was not wholly an improvement of his personal physical security, it was certainly mainly an improvement of his personal physical security and any other benefit was incidental to that. 

79.      Our conclusion on the fourth issue is that the benefit to the Appellant consisted wholly or mainly of an improvement of his personal physical security within the meaning of section 50(6).

Issue (5) – Was the Appellant negligent? 

80.     Our conclusions on the first four issues mean that the appeal must be allowed and that we do not have to consider the fifth issues. However, in case we are wrong so far we very briefly consider the fifth issue as arguments were put to us.   

81.    The last issue in the appeal is whether in respect of the years 1989/90 and 1990/91, there was a loss of income tax attributable to the negligent conduct of the Appellant or the negligent conduct of a person acting on his behalf within the meaning of section 36 of the 1970 Act. (This issue would only arise if the Appellant were not entitled to the deduction under section 50 of the 1989 Act.)

82.      The relevant fact is that the Appellant did not state on his tax returns for the years 1989/90 and 1990/91 that he had received the benefit from the security services proved by Hanson Plc. The tax return should have stated the benefits received and then, if the taxpayer reasonably thought that he was entitled to the deduction in section 50, the deduction should have been made from his income. (It was agreed that there was no requirement for a claim to be made.) Mr Prosser referred us to some Inland Revenue internet publications which referred to the deduction as an exemption and which indicated that if an employer provided or paid for security equipment or services, that was not liable for PAYE and did not have to be entered on a P11D. However, the internet publications would not have been available in 1989-1991 and so could not have influenced the Appellant in his decision about what to include in his tax return. The Appellant was a sophisticated and well-advised taxpayer and in our view his returns should have included a reference to the benefits received followed by the deduction allowed under section 50 of the 1989 Act. It was negligent to omit to do so. 

83.     Our decision on the fifth issue in the appeal is that in respect of the years 1989/90 and 1990/91, there was a loss of income tax attributable to the negligent conduct of the Appellant or the negligent conduct of a person acting on his behalf within the meaning of section 36 of the 1970 Act. 

Decision

84.       Our decisions on the issues for determination in the appeal are:

(1)	that the security services were provided for or used by the Appellant to meet a threat which was a special threat to his personal physical security within the meaning of section 50(4)(a);

(2)    that the threat arose wholly or mainly by virtue of the particular employment concerned within the meaning of section 50(4)(b);

(3)	         that Hanson Plc had the meeting of that threat as its sole object in bearing the cost within the meaning of section 50(5);

(4)     that the benefit to the Appellant consisted wholly or mainly of an improvement of his personal physical security within the meaning of section 50(6); 

that means that the appeal must be allowed and that we do not have to consider the fifth issue; however, in case we are wrong on the first four issues our views on the fifth issue are:   

(5)        that, in respect of the years 1989/90 and 1990/91, there was a loss of income tax attributable to the negligent conduct of the Appellant or the negligent conduct of a person acting on his behalf within the meaning of section 36 of the 1970 Act. 

85.     The appeal is, therefore, allowed

86.	        We understand that at one stage the Inland Revenue were concerned that, if the Appellant were to be entitled to the deduction under section 50 of the 1989 Act, it would create a precedent following which floodgates would open. We do not think that our decision will have that effect. The facts of this appeal, and the Appellant himself, are unique. We have concluded that, by virtue of his prominence in business life in connection with which he maintained high profile political connections and friendships, he was a member of a very small group of people who are likely to be regarded as entitled to the deduction. 

            DR NUALA BRICE

EDWARD SADLER

SPECIAL COMMISSIONERS

SC 3053/03
30.04.04