BIM37737 - Wholly & exclusively: duality of, or non-trade, purpose: remuneration, etc: whether payments to minor children were allowable remuneration
Given a choice of explanations, prefer the one that involves no illegality
It is illegal to employ underage children. This is a factor
which the courts held proper for the Commissioners to take into
account when deciding not to allow deductions for wages claimed to
have been paid to children in the case of Dollar & Dollar v
Lyon [1981] 54TC459.
Ian James Dollar and his wife Mrs. Janice Dollar ran a farm
in partnership on a small farm, 165 acres, in Northamptonshire. The
Dollars had difficulties in obtaining labour. Their children (ages
14, 11, 9 and 7 years) had been brought up to help on the farm. The
children were paid £2 a week each by their parents who also
bought them each £250 worth of National Savings Certificates.
Mr Dollar gave evidence to the effect that that the total of
approximately £354 per year for each child represented the
minimum wage provided for by the Agricultural Wages Act for 15
hours' work per week - two hours each weekday and five on Saturday
- and that those were the hours worked by each child. The taxpayers
sought to deduct the payments to the children as expenses in
computing their profits.
Before the General Commissioners the Inspector contended that
the payments were in respect of the natural love and affection the
parents held for the children and the payments should also be
disallowed as it was illegal to employ anyone under the age of 14
by reason of the Children and Young Persons Act 1933.
The Commissioners stated in their decision that they had
taken into consideration the Act of 1933 and the ages of the
children. The Commissioners decided that (apart from the cash
payment of £104 to the eldest child) the payments were not
deductible being in the nature of pocket money.
Vinelott J dismissed the taxpayers' appeal. The judge
explained that whilst the payments to the minor children may have
been illegal that did not mean that they were thereby disallowable.
If the payments were genuinely made as remuneration then they could
be deducted notwithstanding any illegality. But if the payments
were made to the children out of natural parental love and
affection then they were not deductible. When faced by a
conflicting choice as to purpose
the Commissioners should choose the innocent explanation
over that which involved doing something illegal.
The question whether the payments had been made wholly and
exclusively for the purposes of the taxpayers' trade was one of
fact. There was evidence before the Commissioners upon which they
could have reached their decision.
You should note in particular the Judge’s reference
to:
- The amount paid to each child was the same.
- The amount of the payments was commensurate with pocket money.
- Given the family circumstances there was nothing surprising in finding healthy young children working on the farm in return for pocket money.
- The idea that a child of eight entered into a contract of employment is a strange and unconvincing one.
- It was open to the taxpayers to ask their children to work on the farm without paying them wages in accordance with the Agricultural Wages Act.
For those who do not have ready access to tax case volumes, the sections of Vinelott J’s judgement on which the above guidance is based are set out below (see page 462):
It should be noted that while the General
Commissioners said that they took the provisions of the Children
and Young Persons Act 1933 into consideration they did not decide
the appeal on the ground that the employment of the three younger
children would have been illegal. In that I think they were right,
for clearly a contract of employment of a child is not rendered
unenforceable by the child on the ground that the employment is
illegal. But the fact that the employment of the younger children
in the proper sense of the word ‘employment’ would have
been illegal was equally clearly a matter which the General
Commissioners were entitled to take into account, since if two
explanations of a given state of affairs is possible, one of which
involves the doing of something illegal and the other not, the
innocent explanation is in general to be preferred…
The question whether the payments made by Mr.
and Mrs. Dollar were wages and so were money wholly and exclusively
laid out or expended for the purposes of their farming business is
a pure question of fact. It is to my mind clear that there was
evidence before the Commissioners on which they could have reached
the conclusion that they in fact reached. It is noteworthy that all
the children, whose ages were between eight and 14. were paid the
same and for the same amount of work, and were paid a weekly sum in
cash which was not out of the way as pocket-money. Given the family
circumstances, there is to my mind nothing surprising in finding
healthy young children working on a family farm and getting in
return pocket-money on a generous scale and from time to time a
present of National Savings Certificates out of the profits of the
farm without being in any sense employed or contractually entitled
to any payment. Mr. Dollar, who appeared in person, told me that he
regarded himself as contractually bound to pay the children in
accordance with the minimum wages prescribed by the Agricultural
Wages Act, and that in his view, if he had failed to pay them, the
children could have sued him in the County Court. I find the idea
that a child of eight entered into a contract of employment in this
way a strange and unconvincing one. Equally, it seems to me that it
was open to Mr. Dollar to ask his children to work on the farm
without paying them wages in accordance with the Agricultural Wages
Act. But, in any event, Mr. and Mrs. Dollar did not give this
evidence before the General Commissioners and it would not be right
for me to allow further evidence at this stage supplementing the
facts found by the Commissioners. Nor is there any ground for
referring this matter back to the Commissioners for further
findings of fact. This evidence should have been given, if at all,
at the hearing before them.
