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HMRC internal manual

Residence, Domicile and Remittance Basis Manual

Remittance Basis: Remittance Basis up to 6 April 2008: Previous to 6 April 2008: Thomson v Moyse

In his judgement in Thomson v Moyse, Lord Denning said (emphasis added):

‘Let me first consider the tax chargeable under Case IV. Clearly, tax is only to be computed on the sums received in England. These sums must be directly referable to Mr Moyse’s New York income in this sense, that they must come out of his New York income, or be deductible from it or be traceable to it, so that in the end his New York income is seen to be the provider of the sums received in England. If Mr Moyse receives the sums out of that income in England himself, he must, of course, pay tax on those sums. But he need not receive them himself. It is sufficient if the sums are received in England by some third person by his authority. Thus, if Mr Moyse, instead of receiving the money himself, tells his New York banker to send a remittance to his butcher or baker or candlestick-maker in England, he is chargeable with tax on it for the simple reason that he was ‘entitled’ to the income which has been used to pay the debt; and he must pay tax on it when it is received in England, no matter by whom it is received, so long as it is received by his authority …. Nor is it necessary that Mr Moyse or the third party should receive the sums in coins or dollar notes or treasury notes. It is sufficient if he or the third party receives the sums in England in any of the other forms of money recognized by commercial men, such as bills of exchange, cheques, promissory notes or cash at bank.

Thus, if Mr Moyse, whilst in New York, draws a cheque in dollars on his New York bank in favour of his butcher or baker or candlestick maker in England and brings the cheque over himself or sends it over by post and hands it to the tradesman in payment of the debt, then Mr Moyse is chargeable with tax on it. So much is conceded. But the reason is not because Mr Moyse brought the cheque over from New York, or posted it in New York. It is because the tradesman received it here in payment of his account on the authority of Mr Moyse himself. The position would be just the same if Mr Moyse, with Treasury permission, wrote out the same cheque in England and handed it over himself to the tradesman here. But the dollar cheque itself would be a ‘sum received’ in England by the tradesman on the authority of Mr Moyse: and, as it was payable out of his New York income, Mr Moyse is chargeable with tax on it. My Lords, I have just said that the dollar cheque itself would be a ‘sum received’ in England by the tradesman: and this is, I think, a cardinal point in the case. It is immaterial how the tradesman cashes the cheque. He may, with Treasury permission, cash the cheque in the United States and keep the dollars there; or he may sell the cheque to an authorised dealer in England and receive the proceeds in sterling; or the cheque may be stolen from him and cashed by a wrongdoer, in which case he may sue the wrongdoer in conversion. None of that concerns the man who pays by cheque, for he has got the goods and paid his debt. True it is that the payment is conditional on the cheque being met, but that is only a condition subsequent. If the cheque is met, it ranks as an actual payment from the time it was given and not a conditional one. If the cheque is not met, the tradesman can have recourse to the debtor, because then there has been no payment. But subject to it being defeated by that condition subsequent, the payment is complete at the time when and the place where the cheque is accepted by the creditor.

Now, how does this all apply in the present case? The Commissioners were, of course, quite right in holding that

“neither Seligman Bros nor the Midland Bank Ltd were acting as a collecting agent on the Respondent’s behalf but in every case acted as a principal.”

A bank acts as a collecting agent when a customer hands to the bank a cheque payable to him (the customer) and asks the bank to collect the amount and credit it to his account when received. But the cheques in this case were not made payable to the customer. In every case a cheque was drawn by the customer (Mr Moyse) and made payable to the bank itself, Seligman Bros or the Midland Bank Ltd as the case may be, and the customer received sterling in exchange for it. In short, the customer (Mr Moyse) bought sterling from the bank and paid for it by a dollar cheque. It is just the same as if Mr Moyse, instead of buying sterling, had bought anything else in England a diamond or whatever else you please and paid for it, with Treasury permission, by a dollar cheque on his New York bank account…. , … But I prefer to regard the dollar cheque received by the bank as the ‘sum received’. If Mr Moyse gave the dollar cheque to a relative here as a gift, it would come into the computation of tax, even though he himself got nothing in return. So it is not the receipt of the sterling which is the crucial thing, but the receipt of the dollar cheque’.

Of direct interest and relevance are also the words of Lord Reid

‘From the point of view of the taxpayer, his income has been brought into the United Kingdom. He had, but no longer has, money in a bank abroad: he now has an equivalent amount of money in his hands in this country. How that was achieved is no concern of his, and I cannot read the statutory provisions as making his liability to tax depend on the method which his banker employed.’

and Lord Radcliffe

‘He parted with his dollars: he got his sterling. He emptied one pocket of dollars in order to fill another pocket with sterling. …. what importance can there be in the actual place of making the instrument, or in its physical movements, if the direct result of the mechanism employed was to turn the taxpayer’s income in one country into money or value in the other country, to which he had decided to transfer it?’