A Comparative Look at Three British Tax Cases
Joel S. Newman
Wake Forest University - School of Law
June 12, 1995
Tax Notes, Vol. 67, No. 1509, 1995
A Comparative Look at Three British Tax Cases. Three well-known British tax cases, Watson v. Hornby, Sharkey v. Wernher, and Mason v. Innes, all involved what we in the United States would have designated as nontaxable, imputed income. Yet, the British ruled that two of them, Watson v. Hornby and Sharkey v. Wernher, involved taxable events, while the third, Mason v. Innes, did not. Mason v. Innes was distinguished because the alleged income in that case was that of a professional writer. Such income is taxable under a different schedule in the British system from the others. Furthermore, the income of writers does not involve the inventory accounting that was required in the first two cases.
Why did the British struggle to reconcile these three cases, when we in the United States would have had little difficulty in dismissing all three? The answer lies in the British schedular system. In the United States, everything that could conceivably be called taxable income is taxable. By contrast, in the British schedular system, only those items of income which fit into one of the designated schedules can be taxed. When the horses in Sharkey v. Wernher were transferred from a stud farm operation to the taxpayer’s racing stables, they were transferred from a taxable schedule to a nontaxable category. Therefore, if there had not been a taxable event upon the transfer, there would never have been a further opportunity to tax. It is this distinction between schedular, taxable categories, and nonschedular, nontaxable categories that led to the contortions in the three cases.
Number of Pages in PDF File: 5
Date posted: October 28, 2010