In HMRC v Smith & Williamson Corporate Services and P Smiley [2015] UKUT 666 (11 December 2015), the UT found that a payment made to an employee in relation to his client connections was an emolument from employment.
Mr Smiley, a fund manager, had been head of a team of individuals (the ‘Team’) that had worked for Butterfield, building a customer portfolio. He had then taken employment with SWCS, a company in the Smith and Williamson (S&W) group. Together with other members of the Team, Mr Smiley had agreed under a contract with SWCS’s sister company, SWIM, to deliver his client relationships for a ‘goodwill payment’. The issue was whether his share of the payment was an emolument.
The FTT had found that Mr Smiley had disposed of a capital asset to SWIM, so that the payment was not an emolument. The UT pointed out, however, that the Team did not own or have any legal interest in the business being carried on, but only personal relationships with Butterfield’s clients. All they could therefore do was to introduce to SWIM the Butterfield clients with whom they dealt; and agree to assist in, or procure, the transfer of those clients and their funds to SWIM. Furthermore, the employment contract with SWCS and the contract with SWIM were linked and the FTT judge had been wrong to rely on the parties’ subjective intentions, instead of assessing the effect of the arrangements objectively. The Team had been employed in the hope and expectation on the part of the S&W Group (including SWIM) that some, at least, of the Butterfield clients would transfer to SWIM. The payment therefore arose from the employment.
Why it matters: The concept of goodwill can be rather elusive. This decision clarifies the distinction between personal connections built over the years and goodwill, which in this case encompassed the right to sell a customer portfolio and remained with the Team’s previous employer.
In HMRC v Smith & Williamson Corporate Services and P Smiley [2015] UKUT 666 (11 December 2015), the UT found that a payment made to an employee in relation to his client connections was an emolument from employment.
Mr Smiley, a fund manager, had been head of a team of individuals (the ‘Team’) that had worked for Butterfield, building a customer portfolio. He had then taken employment with SWCS, a company in the Smith and Williamson (S&W) group. Together with other members of the Team, Mr Smiley had agreed under a contract with SWCS’s sister company, SWIM, to deliver his client relationships for a ‘goodwill payment’. The issue was whether his share of the payment was an emolument.
The FTT had found that Mr Smiley had disposed of a capital asset to SWIM, so that the payment was not an emolument. The UT pointed out, however, that the Team did not own or have any legal interest in the business being carried on, but only personal relationships with Butterfield’s clients. All they could therefore do was to introduce to SWIM the Butterfield clients with whom they dealt; and agree to assist in, or procure, the transfer of those clients and their funds to SWIM. Furthermore, the employment contract with SWCS and the contract with SWIM were linked and the FTT judge had been wrong to rely on the parties’ subjective intentions, instead of assessing the effect of the arrangements objectively. The Team had been employed in the hope and expectation on the part of the S&W Group (including SWIM) that some, at least, of the Butterfield clients would transfer to SWIM. The payment therefore arose from the employment.
Why it matters: The concept of goodwill can be rather elusive. This decision clarifies the distinction between personal connections built over the years and goodwill, which in this case encompassed the right to sell a customer portfolio and remained with the Team’s previous employer.
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