On appeal from: [2018] EWCA Civ 2544

Mr Fowler is a qualified diver who is resident in the Republic of South Africa. During the 2011/12 and 2012/13 tax years he undertook diving engagements in the waters of the UK’s continental shelf. HMRC stated that he is liable to pay UK income tax for this period. Whether he is liable depends on the application of a Double Taxation Treaty between the UK and South Africa. Article 7 of the Treaty provides that self-employed persons are taxed only where they are resident (i.e. South Africa), whereas article 14 provides that employees may be taxed where they work (i.e. the UK). For the purposes of this appeal, the parties have assumed that Mr Fowler was an employee. Mr Fowler claims he is nevertheless not liable to pay tax in the UK. His case centres on a “deeming provision” in section 15 of the UK’s Income Tax (Trading and Other Income) Act 2005 (“ITTOIA”). This provides that an employed seabed diver is “treated” as self-employed for the purposes of UK income tax.

Mr Fowler argued that, since he is treated as self-employed for income tax purposes, he must be treated as self-employed under the Treaty and is therefore only taxable in South Africa. HMRC, on the other hand argued that ITTOIA does not affect whether someone is an employee, but only regulates the manner in which an employee is taxed.

The Supreme Court unanimously allowed HMRC’s appeal, holding that (if the parties’ factual assumptions are correct) Mr Fowler should be treated as an employee and subject to UK income tax. It held that expressions in the Treaty should be given their ordinary meaning. Section 15 of the ITTOIA provides that a person who would otherwise be taxed as an employee is “instead treated” as self-employed for the purposes of domestic income tax. Deeming provisions of this kind create a “statutory fiction” which should be followed as far as required for the purposes for which the fiction was created.

For judgment, please download: [2020] UKSC 22

For Court’s press summary, please download: Court’s Press Summary

For a non-PDF version of the judgment, please visit: BAILII

To watch the hearing please visit: Supreme Court website, 24 March 2020 morning and afternoon sessions.

To watch the judgment summary, please visit: Supreme Court website, 20 May 2020 judgment summary.