RCI Europe v HM Inspector of Taxes [2003] EWHC 3129 (Ch)

Case No CH/2003/APP/0180[2003] EWHC 3129 (Ch)IN THE HIGH COURT OF JUSTICECHANCERY DIVISIONREVENUE LISTVenue Royal Courts of Justice, Strand, London, WC2A 2LLDate 16 th December 2003
Before
THE HONOURABLE MR JUSTICE LIGHTMAN
Between
RCI EUROPEAppellantKATE WOODSRespondent
Mr Kevin Prosser QC (instructed by Slaughter and May, One Bunhill Row, London EC1Y 8YY ) for AppellantMr David Ewart (instructed by Solicitor of Inland Revenue, Somerset House, Strand, London WC2R 1LB) for RespondentHearing Hearing dates: 15 th– 16 th October and 12 th December 2003
Judgment

INTRODUCTION

[1]This is an appeal by RCI Europe ("RCI") against the decision ("the Decision") of a Special Commissioner Dr Avery Jones ("the Commissioner") dismissing RCI’s appeal against a Notice of Decision by the Inland Revenue ("the Revenue") to the effect that RCI is liable for primary and secondary Class 1 National Insurance Contributions ("NIC") in respect of payments totalling £2.2 million to a former director and employee of RCI, Mr Julian Haylock.[2]Appeals to the High Court may be brought on a question of law pursuant to section 56A of the Taxes Management Act 1970. The question of law arising in this case turns mainly on the correct interpretation of a consolidating Act, the Social Security Contributions and Benefits Act 1992 ("the 1992 Act") and in particular section 4(4) of the 1992 Act ("section 4(4)). References to sections in this judgment (unless otherwise indicated) shall be references to sections in the 1992 Act.[3]Mr Haylock was an employee and director of RCI from 1984 until he resigned on the 31st July 1994. On the 22nd December 1994 RCI and Mr Haylock entered into a Severance Agreement whereby (inter alia) he agreed to restrict his future activities in certain respects and in return RCI agreed to make, and did make, the following money payments ("the restrictive covenant payments") to him: Date Sum Paid Period for which payment made 1. 03.01.95 £ 500,000 22.12.94 – 31.12.95 2. 30.12.95 £ 500,000 " 3. 03.01.96 £ 200,000 1996 4. 30.12.96 £ 800,000 " 5. 01.01.97 £ 200,000 1997 Total £2,200,000[5]Mr Haylock was not a director of, or employed by, RCI during the period in which, or for which, the restrictive covenant payments were made. The issue in this appeal is whether RCI is liable for primary and secondary NIC in respect of the restrictive covenant payments to Mr Haylock. This turns upon the answer to two questions. The first is whether the payments fall within section 313 of the Income and Corporation Taxes Act 1988 ("TA section 313") which charges to tax payments made in consideration for certain restrictive undertakings. The answer to this question turns on what connection is required between the holding of the employment and the giving of the undertakings for TA section 313 to apply. RCI contends that the undertakings must be connected with the officer’s or employee’s status as such. The second is whether section 4(4), which requires any payment to or for the benefit of an employed earner chargeable to tax by virtue of TA section 313 to be treated as earnings from the employed earners employment for the purposes of Part I of the 1992 Act, applies to those payments. This turns on whether for section 4(4) to apply (as RCI contend) the payment has to be made during the period of employment, and not before it began or after it ended.[6]The issues raised in this case are of some substantial practical importance. If RCI is correct, straightforward payments of salary entirely escape NIC if they are made before (even just before) the employment commences or after (or even just after) it ends. The legislation gives limited powers to the Secretary of State by regulation to counter avoidance. The Secretary of State has exercised this power in the form of Regulations 21 and 22 Social Security (Contributions) Regulations 1979 ("the 1979 Regulations"). It is common ground that, if RCI is correct in its contentions that the payments do not give rise to a liability to NIC, the payments to Mr Haylock do not fall within the scope of either of the two regulations. OVERALL LEGISLATIVE SCHEME[7]The 1992 Act provides for a system of earnings related contributions (Part I) and contributory benefits (Part II). These are obviously linked. A person’s entitlement to contributory benefits depends upon his having paid contributions. The purpose of paying the contributions is to qualify for the contributory benefits. The entitlement to contributory benefits is not restricted to the period of employment. They are available at any time if once qualified for them. Provision is made for deeming payments received in return for restrictive covenants to be earnings for the purposes of Part I. Two special cases are expressly provided for which accord with this scheme:a. children under 16 are not liable for contributions because it is not intended that they should qualify for contributory benefits. They are entirely outside the contributions and benefits system;b. a person who has reached pensionable age does not qualify for contributory benefits. Therefore, he is not liable for contributions. (The exception to this is where the person has deferred his pension. In those circumstances, he continues to qualify for benefits as a quid pro quo for deferring his pension entitlement). 7. The thrust of RCI’s case is that the payments to Mr Haylock should not bear contributions for two distinct reasons. The first is that the restrictive covenants were given after his employment had ceased. The second is that the payments thereunder were received after his employment ceased and such payments fall outside the legislation if made either before or after the period of employment. 8. Under a scheme such as the present, the normal expectation would be that contributions are paid on all earnings whether paid before employment began, during employment or after it ended and that the legislature does not intend to make liability to pay NIC depend on the happenstance of when the restrictive covenants were entered into or whether earnings are actually paid whilst employment continues in force. Otherwise the date of any agreement or payment would be open to engineering or manipulation so as to make NIC (in effect) a voluntary tax. The question raised is whether the language of the legislation requires the adoption of the construction for which RCI contends. THE LEGISLATIVE PROVISIONS 9. Part I of the 1992 Act is concerned with contributions. Section 3(1) defines the terms "earnings" and "earner":
"3(1) In this Part of this Act and Parts II to V below- (a) ‘earnings’ includes any remuneration or profit derived from an employment; and (b) ‘earner’ shall be construed accordingly." 10. Section 2 creates two categories of "earner" namely an "employed earner" and a "self-employed earner": "(1) In this Part of this Act and Parts II to V below─ (a) ‘employed earner’ means a person who is gainfully employed in Great Britain either under a contract of service [or in an office (including elective office) with emoluments chargeable to income tax under Schedule E;] and (b) ‘self-employed earner’ means a person who is gainfully employed in Great Britain otherwise than in employed earner’s employment (whether or not he is also employed in such employment). … (5) For the purposes of this Act, a person shall be treated as a self-employed earner as respects any week during any part of which he is such an earner (without prejudice to his being also treated as an employed earner as respects that week by reference to any other employment of his)."
Section 122(1) provides that in Parts I to V of the Act, "unless the context otherwise requires, employed earner" has the meaning assigned to it by section 2. This scheme of the legislation is that earners in Great Britain must fall within one or other of these two categories. 11. Section 1(2), after providing that there shall be five Classes of contribution, sets out the two categories of Class 1 contributions:
"(a) Class 1, earnings-related payable under section 6 below, being─ (i) primary Class 1 contributions from employed earners; and (ii) secondary Class 1 contributions from employers and other persons paying earnings…" 12. Section 6 imposes liability for Class 1 contributions: "6-(1) Where in any tax week earnings are paid to or for the benefit of an earner in respect of any one employment of his which is employed earner’s employment and (a) he is over the age of 16 ; and … a primary and a secondary Class 1 contribution shall be payable in accordance with this section and sections 8 and 9 below. (2) Except as may be prescribed, no primary Class 1 contribution shall be payable in respect of earnings paid to or for the benefit of an employed earner after he attains pensionable age, but without prejudice to any liability to pay secondary Class 1 contributions in respect of any such earnings. (3) The primary and secondary Class 1 contributions referred to in subsection (1) above are payable as follows─ (a) the primary contribution shall be the liability of the earner; and (b) the secondary contribution shall be the liability of the secondary contributor; but nothing in this subsection shall prejudice the provisions of paragraph 3 of Schedule 1 to this Act relating to the manner in which the earner’s liability falls to be discharged…." 13. Section 7(1) identifies "the secondary contributor": "
For the purposes of this Act, the ‘secondary contributor’ in relation to any payment of earnings to or for the benefit of an employed earner is─ (a) in the case of an earner employed under a contract of service, his employer; (b) in the case of an earner employed in an office with emoluments, either─ (i) such person as may be prescribed in relation to that office; or (ii) if no person is prescribed, the government department, public authority or body of persons responsible for paying the emoluments of the office." 14. Section 1(4) provides that Schedule 1 of the Act shall have effect with respect to the computation, collection and recovery of Class 1 contributions. Paragraph 3 of Schedule 1 provides that the secondary contributor (the employer) shall be liable in the first instance to pay the earner’s primary contribution, but shall be entitled to recover the payment by way of deduction from earnings:
"3-(1) Where earnings are paid to an employed earner and in respect of that payment liability arises for primary and secondary Class 1 contributions, the secondary contributor shall (except in prescribed circumstances), as well as being liable for his own secondary contribution, be liable in the first instance to pay also the earner’s primary contribution, on behalf of and to the exclusion of the earner; and for the purposes of this Act and the Administration Act contributions paid by the secondary contributor on behalf of the earner shall be taken to be contributions paid by the earner. (2) Notwithstanding any contract to the contrary, no secondary contributor shall be entitled─ (a) to make, from earnings paid by him, any deduction in respect of his own or any other person’s secondary Class 1 contributions, or (b) otherwise to recover such contributions from any earner to whom he pays earnings. (3) A secondary contributor shall be entitled, subject to and in accordance with regulations, to recover from an earner the amount of any primary Class 1 contribution paid or to be paid by him on behalf of the earner; and notwithstanding anything in any enactment, regulations under this sub-paragraph shall provide for recovery to be made by deduction from the earner’s earnings, and for it not to be made in any other way." 15. Schedule 1 provides that the Secretary of State may make provision (1) for securing that liability is not avoided or reduced by a person following in the payment of earnings any practice which is abnormal for the employment in respect of which the earnings are paid (see para 4(c)) and (2) for treating a person’s employment as continuing and in such circumstances as may be prescribed (see para 8(1)(o)). 16. Section 4 requires certain payments to be treated as remuneration or earnings for the purposes of NIC. The critically relevant subsection is subsection (4) which reads as follows: "
For the purposes of section 3 above there shall be treated as remuneration derived from an employed earner’s employment any sum paid to or for the benefit of an employed earner which is chargeable to tax by virtue of section 313 of the Income and Corporation Taxes Act 1988 (taxation of consideration for certain restrictive undertakings) otherwise than by virtue of subsection (4) of that section." 17. Section 313 of the Income and Corporation Taxes Act 1988 ("TA section 313") referred to in section 4(4) reads as follows:
"(1) Where an individual who holds, has held, or is about to hold, an office or employment gives in connection with his holding that office or employment an undertaking (whether absolute or qualified, and whether legally valid or not) the tenor or effect of which is to restrict him as to his conduct or activities, any sum to which this section applies shall be treated as an emolument of the office or employment, and accordingly shall be chargeable to tax under Schedule E, for the year of assessment in which it is paid. (2) This section applies to any sum which─ (a) is paid, in respect of the giving of the undertaking or its total or partial fulfilment, either to the individual or to any other person; and (b) would not, apart from this section, fall to be treated as an emolument of the office or employment …. (4) Where valuable consideration otherwise than in the form of money is given in respect of the giving of the undertaking or its total or partial fulfilment subsections (1) to (3) above shall have effect as if a sum had instead been paid equal to the value of that consideration." 18. TA section 313 applies to undertakings given "in connection with the present part or future holding of an office or employment"
. This may be contrasted with the provisions of sections 148 and 188 of the Income and Corporation Taxes Act 1988 ("ICTA sections 148 and 184") which apply to payments made in connection with the termination of the holding of an office or employment. Those sections read as follows:
"148 Payment on retirement or removal from office or employment. 1. Subject to the provisions of this section and section 188, tax shall be charged under Schedule E in respect of any payment to which this section applies which is made to the holder or past holder of any office or employment, or to his executors or administrators, whether made by the person under whom he holds or held office or employment or by any other person. 2. This section applies to any payment (not otherwise chargeable to tax) which is made, whether in pursuant of any legal obligation or not, either directly or indirectly in consideration or in consequence of or otherwise in connection with, the termination of the holding of the office or employment…. 188. Exemption from section 148 …. 3. Tax shall not be charged by virtue of section 148 in respect of a payment not exceeding £30,000 (‘the exempt sum’) and subject to subsection (5) below in the case of a payment which exceeds that amount shall be charged only in respect of the excess." 19. Section 114 (of the 1992 Act) provides that, if a person fails to pay at or within the time prescribed any contribution which he is liable to pay under Part I of the 1992 Act, he will be guilty of an offence and liable on summary conviction to a fine. 20. The 1979 Regulations, made under the predecessor of the 1992 Act but continuing in force, specify the earning period in respect of earnings received after the recipients employment or directorship has ceased. Regulation 21 conferred on the Secretary of State power to make determinations in relation to abnormal pay practices generally. Regulation 22 of the 1979 Regulations provided that, if the Secretary of State is satisfied as to the existence of any practice in respect of the payment of earnings whereby the incidence of earnings-related contributions is avoided or reduced by means of irregular or unequal payments, he may give directions for securing that such contributions are payable as if that practice were not followed. No such determination or decision has been made in respect of the payments made by RCI to Mr Haylock. I shall consider the provisions in greater detail later in relation to the last question raised before me. It is sufficient to say at this stage that the 1979 Regulations (and in particular Regulations 3 and 4) were plainly drafted on the premise that receipts after the employment had ceased fell subject to charge under the predecessor legislation and since the 1979 Regulations thereafter continued in force under the 1992 Act, it has generally been assumed, particularly by the Secretary of State, that this has continued to be the case. ISSUES TO BE DETERMINED 21. For section 4(4) to apply to the restrictive covenant payments and to require them to be treated as earnings, two conditions must be fulfilled: (a) the payments must be chargeable to tax under TA section 313; and (b) the payments must be "to or for the benefit of an employed earner" within the meaning of section 4(4). (a) Application of section 313 22. Before the Commissioner, Mr Prosser’s case (as set out in his skeleton argument) was that the payments to Mr Haylock were not caught by section 313 because the undertaking given by Mr Haylock was not given in connection with his holding his employment or office with RCI: the only connection was that his employment and office had previously terminated. 23. The relevant passages in the Decision read as follows: "3. The Severance Agreement provided for post-termination restrictions on Mr Haylock applying from the date of the agreement (22 December 1994) until 31 December 1995, in outline not to be engaged in any competing business of the Appellant and its associated companies, not to solicit their customers, not to employ their employees, not to communicate with any customer or client of theirs, not to be employed by a party to an affiliation agreement with any of them; and two restrictions without any time limit, not to represent that he is associated with the Appellant, and not to use the names or intellectual property of the Appellant or its associated companies. The consideration for those restrictions was payments 1 and 2 in the table above. Mr Haylock could, and did, elect to continue to be bound by the same restrictions for the year 1996, and separately for 1997 for which he was entitled to payments 2, 4 and 5 in the table.…. Section 313 of the Taxes Act 1988 6. In applying section 4(4) of the Social Security Contributions and Benefits Act 1992, the first question is whether the payments are chargeable under section 313 of the Taxes Act 1988. Mr Prosser QC contended that, while he conceded that the first two payments were chargeable, the remainder were not, since they were derived from the separate elections by Mr Haylock to be bound by the restrictive covenants during 1996 and 1997. He contended that the covenants were not given ‘in connection with his holding’ of the office of director of the Appellant, but after he had ceased to hold the office. Section 313 was enacted to deal with cases like Beak v Robinson 25 TC 33 where the service agreement provided for an immediate payment in return for a covenant not to compete for 5 years within a radius of 50 miles if he determined the agreement or it was determined by his breach of the provisions. 7. Mr Ewart contended that it was a clear case of a person who ‘has held’ the office. He referred to Vaughan-Neil v IRC [1979] STC 644f where Oliver J said: ‘As a matter simply of grammatical construction, it seems to me that these words [in connection with his holding that office or employment] fulfil an adverbial function and qualify not the undertaking but the giving of it’ The undertaking was given pursuant to the termination agreement which was sufficient to connect it with the holding of the office of director. Mr Prosser QC did not dispute this point but said that the covenant was not given in connection with the holding of the office, but in connection with the non-holding of it. Reasons for decision on section 313 8. Although the covenants were given pursuant to two separate elections by Mr Haylock to continue to be bound by the covenants imposed for the first period after termination of his service agreement, I consider that they were given in connection with his holding that office. They are a continuation of covenants given in relation to the termination of the office, which is a sufficient connection. The reason why the covenants were imposed, and why the Appellant was prepared to pay during the two extension periods, was that Mr Haylock held the office of director. I do not consider that the section is limited to cases like Beak v Robinson where the restriction is contained in the service agreement and relates to the period after it is terminated. Whether or not that represents the normal case, there is nothing to prevent the section from applying to covenants imposed in a termination agreement made after the person has ceased to hold the office or employment. The covenant is still given in connection with the holding of the office or employment. 9. Accordingly section 3133 applies to all the payments in question…." 24. In 1942 the House of Lords decided the case of Beak v. Robson (1942) 25 TC 33. The issue was whether a payment to an employee in return for a restrictive covenant escaped tax. The critical facts of the case are set out in the speech of Lord Simon (at p.41) "
In the agreement before us, the obligations flowing from the contract of service and the remuneration to be received by the Respondent in respect of that service are entirely separate from the restrictive covenant and the consideration which is given for it. The sum of £7,000 is not paid for anything done in performing the services in respect of which Mr Robson is chargeable under Schedule F. The consideration which he has to give under the covenant is to be given not during the period of his employment, but after its termination. He is giving to the company for a sum of £7,000 the benefit of a covenant which will only come into effect when the service is concluded." 25. The House of Lords held that the payment to the employee escaped tax because the payment for the covenant was quite distinct from the payment for services under his contract for service. The decision of the House of Lords greatly surprised the legal profession (see Harman J in CIR v. Lactagol (1954) 35 TC 230 at 236) and no doubt the legislature considered that, unless something was done to bring such payments within the revenue net, this would open the door to a wholesale payment of tax-free emoluments (see Oliver J in Vaughan-Neil v. IRC [1979] STC 644 at 651e). The legislature accordingly enacted as an anti-avoidance provision section 26 of the Finance Act 1950, and that anti-avoidance provision is now to be found in TA section 313. 26. Mr Ewart (for the Revenue) submits that on a plain and fair reading, all that TA section 313 requires is that there is a "connection" between the actual, prospective or past holding of the employment and the giving of the undertaking: see per Oliver J in Vaughan-Neil v. IRC [1979] STC 644 at 652b-f. As might be expected in such anti-avoidance legislation, there is no restriction on the type of "connection" which will bring the section into operation. Any "connection" which is not de minimis will suffice and that connection was amply established in this case. 27. Mr Prosser on behalf of RCI initially argued that the section requires in case of payments made after employment ceases that the payment be made pursuant to some agreement, arrangement or understanding entered into by the parties before the employment began or whilst it continued and that this essential element is missing in this case. After I had expressed my view that such a construction or gloss on the language of the section was not permissible, he refined his submission and argued that the undertaking must be given in connection with the individual’s present, past or future status as an employee, and a connection merely with the termination of that status is insufficient. 28. The grounds put forward for this contention were twofold. The first was linguistic. He noted that TA section 313 requires that the connection exist between the undertaking given and the holding (and not the termination) of the office or employment and the contrast in this respect with TA section 148 which uses the wording:
"in connection with the termination of the holding of the office or employment"
. From this comparison of the two sections, he drew the inference that Parliament plainly regarded the distinction as significant: it did not in TA section 313 use the formula "in connection with his holding or with the termination of his holding of that office or employment". He therefore concluded that the language shows that the existence of a connection between the undertaking given and the termination of the holding of the office or employment does not constitute or establish the required connection with the holding of the office or employment. 29. His second ground lies in a purposive construction of the section. He submits that the clear purpose of TA section 313 is to bring into charge payments for restrictive covenants given in connection with being (and not ceasing to be) an office holder or employee, and it would be a complete overkill to extend the application of TA section 313 beyond cases where the only connection is between the giving of the undertaking and the termination of that status. He goes on to say that Parliament could not have intended TA section 313 to apply to such termination cases, for it made separate provision for such cases. ICTA section 148 charges to tax under Schedule E a payment made in connection with the termination of the holding of the office or employment and ICTA 1988 section 188(4) renders the first £30,000 tax free, and Parliament cannot have intended this exemption to be nullified in almost all cases by TA section 313 (which has precedence over section 148) applying instead. 30. ICTA sections 148 and 188 only apply (as stated in ICTA section 148(2)) to payments not otherwise chargeable to tax: they do not accordingly apply to payments chargeable to tax under TA section 313. The first question is accordingly the payments made in respect of the giving of the undertakings fall within TA section 313. Since the giving of the undertakings need only be connected with the past holding of employment to trigger TA section 133 (and therefore need have no connection with any ongoing relationship), I can see no reason why the connection should not be with one possible aspect of the past holding, namely its termination. The connection must of course be real and not illusory. I find no contra-indication in the language of ICTA 148. Whilst the language of TA section 133 is apt to embrace connections both with on-going and extinct relationships, ICTA 148 is confined to payments made in connection with the termination of the relationships not falling within TA section 313. There is no reason why Parliament should not have intended the provisions of TA section 313 to apply and impose a less generous tax regime to situations which would otherwise fall within ICTA 148 (i.e. termination of relationships) and preclude its application and (with it) the exemption. 31. I therefore hold that the required connection to trigger application of TA section 313 of office or employment with a present, past or future holding embraces a real connection with the termination of such holding or employment. It is and indeed must be common ground that, if this construction is correct, the required connection is amply established. 32. But even if this is not correct and the undertaking has to be connected with Mr Haylock’s past status as an employee or director, that condition was likewise established by the terms of the Severance Agreement and on a fair and full reading of the Decision the Special Commissioners likewise (and inevitably) held the condition to be established. The necessary connection was and is established by the following: (a) the giving of the undertakings was part of the Severance Agreement under which RCI and Mr Haylock settled all claims arising out of Mr Haylock’s employment and are not limited to its termination; (see in particular clause 2); (b) the undertakings all relate to the business of RCI (or its associated companies) which was the business in which Mr Haylock was employed (see clause 5.9(a)); and (c) clause 5.9(c) of the Severance Agreement records that in the course of his employment, Mr Haylock "acquired the most intimate and detailed knowledge of the business, affairs, plans and intentions of the Company". The Commissioner had only need to summarise the provisions of the Severance Agreement and was amply justified on the basis of those provisions in stating at paragraph 8 of the Decision:
"The reason why the covenants were imposed and why [RCI] was prepared to pay during the two extension periods was that Mr Haylock held the office of director"
. The Special Commissioner had good and ample grounds for holding that the giving of the undertakings was clearly connected with and a direct result of Mr Haylock being an employee of RCI. Accordingly even on Mr Prosser’s construction of TA section 313, the requirement for a connection is fully satisfied, and the sums paid to Mr Haylock are chargeable to tax under TA section 313. (b) Application of section 4(4) 33. Since the sums paid to Mr Haylock are chargeable to tax under TA section 313, it is necessary next to decide whether (within the meaning of the first half of section 4(4)) the payments were "sum[s] paid to or for the benefit of an employed earner". Mr Prosser submits that, reading into section 4(4) the definition of employed earner in section 2(1), namely "a person who is gainfully employed" (and focusing in particular on the word "is"), section 4(4) only deems the payments received in consideration for restrictive undertakings earnings derived from an employed earner’s employment if the recipient is at the date of receipt a person who is gainfully employed and that must mean gainfully employed by the employer making the payment. Accordingly payments made prior to the commencement of employment or after employment has ceased (for whatever reason they are paid prior to the commencement or after cesser) escape charge. 34. The word "is" in section 2(1)(a) will not bear the weight placed upon it by Mr Prosser. The 1992 Act is a Consolidation Act. Its statutory predecessor was the Social Security Act 1975, itself a consolidation Act. That statute re-enacted the Social Security Act 1973, the first social security legislation. The 1973 Act replaced the last consolidating enactment of the national insurance legislation, namely the National Insurance Act 1965.

(a) of the National Insurance Act 1965 read as follows:

"… employed persons, that is to say, persons gainfully occupied in employment in Great Britain, being employed under a contract of service, …" 35. The change in language and the addition of the words "who is" (like the substitution of the words "which is" for "being" in section 6(1) would appear to be stylistic only. 36. Section 2(1)(a) is a definition section with no specific temporal requirements.

(a) and (b) are categories of earner"

. The term "earner" is in turn defined by section 3(1) as a person in receipt of "remuneration or profit derived from an employment. Accordingly "employed earner" includes any person who receives remuneration derived from an employment. Remuneration can obviously be derived from an employment even if the employment has already ceased to subsist when the remuneration is received e.g. his last month’s salary. Section 2(1) is merely defining the status of an employed earner and spelling out the qualifications for such status. The words "who is" do not add anything to this meaning of the section read with their omission: they are plainly not intended to have any such temporal significance as Mr Prosser attaches to them. The words "employed earner" merely mean a person gainfully employed. The same point applies in respect of the definition of "employer" in section 7(1) of the 1992 Act. That section provides that, for the purposes of the Act, the secondary contributor in relation to any payment of earnings to or for the benefit of an employed earner is, in the case of an earner employed under a contract of service, his employer. Section 7(1) is merely defining the term employer for the purposes of the Act. The word "is" again has no temporal significance. 37. The fact that there is absent any temporal significance in the definition of "employed earner" in section 2(1) is made plain by reference to other sections in the 1992 Act. It is sufficient to refer to three sections where it is clear that the term is apt to include employed earners after their employment has ceased. The first is section 27(1)(a) which refers to "an employed earner who has lost employment as an employed earner by reason of a stoppage of work…". It is clear for the purposes of the section an employed earner can "lose his employment" temporarily or permanently: see Cartlidge v. Chief Adjudication Officer [1986] 1 QB 360 at 377 per Ralph Gibson LJ. An employed earner who has permanently lost his employment is no longer gainfully employed by his employer, but yet section 27(1)(a) makes plain that he is still an employed earner for the purposes of the section. The word "is" in section 2(1) is not therefore to be given a temporal significance. 38. The second is section 103(1) which states that "an employed earner shall be entitled to disablement pension…". Again it is clear that an employed earner does not have to be gainfully employed to be entitled to the pension. It is sufficient that he became disabled as an employed earner. 39. The third is section 103(2) which refers to "the determination of the extent of an employed earner’s disablement". Again the employed earner does not have to be in employment at the time of the determination of the extent of his disablement. It is again sufficient that he became disabled as an employed earner. 40. Common-sense demands that in section 4(4) the reference to employed earner is read as a reference to the status in relation to which the payment is received. Section 4(4) lays down no specific temporal requirements. The reference to an "employed earner" cannot be a reference to the individual’s status at the time the sum is paid. I should add that such a construction is scarcely consistent with the scheme envisaged by section 4(4). TA section 313 brings into charge under Schedule E payments made before, during or after employment. Section 4(4) provides for the treatment of any and all of such payments as earnings, and not merely payments made during the period of employment. 41. I accordingly hold that "employed earner" for the purposes of section 4(4) in section 2(1) and in section 7(1) must be references to the status of the recipient to which the payment is attributed, and the terms "employee" and "employer" for the same reason must mean the employee and employer under the relevant relationship and not the employee and employer at the time the payment is made. Mr Haycock is clearly the employee and RCI is clearly the employer in relation to the payments in question on this appeal and therefore RCI is the secondary contributor. 42. The provisions, and continuation in force, of the 1979 Regulations which assume this state of the law at the very least provide comfort in reaching this conclusion. It is unnecessary to enter into the vexed question whether the 1979 Regulations can afford any guidance on the construction of the 1992 Act or its statutory predecessor. In view of my conclusion, plainly there is no need or occasion for the Secretary of State to exercise his power to make regulations under paragraphs 4(c) and (d) of Schedule 1 of the 1992 Act. THE EARNINGS PERIOD 43. It is common ground between the parties that, if the receipts of Mr Haylock in this case fall within section 4(4), the relevant earnings period is either that specified in Regulation 3 or Regulation 4 or Regulation 6A of the 1979 Regulations. The only significance for the parties is the choice between on the one hand Regulation 6A and on the other hand Regulations 3 and 4. If Regulation 6A does not apply, it is a matter of indifference to them whether the applicable provision is Regulation 3 or 4. 44. The relevant passages in the three regulations read as follows: "3.─(1) Where any part of such earnings as are specified in the immediately preceding regulation is normally paid [or treated under regulation 6 of these regulations as paid] at regular intervals, the earnings period in respect of those earnings shall, subject to the provisions of paragraphs (2), [(2A)], (3) and (4) of this regulation, be the period─ …. 4. Subject to regulation 3(4) or 5 of these regulations, where earnings are paid to or for the benefit of an earner in respect of an employed earner’s employment, but no part of those earnings is normally paid or treated under regulation 6 of these regulations as paid at regular intervals, the earnings period in respect of those earnings shall be a period of one of the following lengths─… 6A.─ … (5) Where a person is no longer a director of a company and in any year after that in which he ceased to be a director thereof he is paid earnings in respect of any period during which he was such a director, then─… (b) the earnings period in respect of those earnings shall be the year in which they are paid." 45. The Commissioner held that Regulation 4 (and possibly Regulation 3) in respect of the later payments applied. The issue before is whether he was bound in law to hold that paragraph 6A applies by reason of the terms of section 4(4) of the 1992 Act. 46. The issue may be formulated as follows. As section 4(4) of the 1992 Act applies, the payments to Mr Haylock are to be treated as remuneration derived from Mr Haylock’s employment. In those circumstances the question raised is whether those payments, because they are to be treated as remuneration derived from Mr Haylock’s employment, are to be treated for the purposes of Regulation 6A(5) as earnings "in respect of any period during which he was such a director". 47. As a matter of impression I would have thought and held that the answer must be in the negative because there is absent any compelling reason for such treatment. Payments of earnings may be treated as derived from employment without any necessity for their treatment as earnings during any particular period, let alone the period of any employment or directorship. This view happily accords with the view taken by the House of Lords in Bray v. Best [1989] STC 159 in the context of a charge to Schedule E Tax. Lord Oliver in that case held (at p.167) that there was not necessarily subsumed in the concession that a payment constituted an emolument from employment a conclusion that the payment must therefore be for a chargeable period within the aggregate period during which the employment subsisted. There was no basis for this conclusion in logic or authority. The period to which any given payment is to be attributed is a question to be determined as one of fact in each case, depending on all the circumstances, including its source and the intention of the payer. The principles so stated by Lord Oliver in the context of Schedule E are equally applicable under the 1992 Act. 48. The Commissioner was therefore not constrained to hold that Regulation 6A applies, but was fully entitled to reach the decision which he did. CONCLUSION 49. I accordingly dismiss this appeal. In doing so I must express my debt and gratitude to both Counsel for their valuable assistance throughout the hearing.

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