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Reconciling Sharkey V Wernher with Mason V Innes

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Downloads to date: N/A | Words: 1900 | Submitted: 2005-02-13

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Firstly, he felt that this option presented a fairer measure of the profits between one taxpayer and another. Otherwise, variations would arise, for no other reason than the level of profits being based upon an arbitrary decision made by the taxpayer as to what proportion to allocate to himself or herself.

Secondly, it appears to make greater economic sense to credit the taxpayer with a current realisable value, rather than with accrual expenses. As no actual cash passes, during such a transfer, it is true to say that the decision regarding which figure to use is merely a decision as to which fictional figure to use. The very nature of this figure is likely to result in considerable ambiguity.

Tilley recognised two key objections that can be and have been raised to the Sharkey V Wernher decision.

Viscount Simonds re-clarified the position as it stood prior to Watson V Hornby and argued that it remained applicable, at least in essence:-

“the true proposition is not that a man cannot make a profit out of himself but that he cannot trade with himself”.

Secondly, and perhaps more intuitively, is the fact that a fundamental principle exists that a person should be taxed, based upon actual rather than speculative earnings.

Despite the objections raised, this decision remained relatively undisputed until Mason V Innes. In this case, Hammond Innes, a famous author, wrote a book entitled “The Doomed Oasis”. The volume was produced at great expense and the copyright given to his father as a gift, prior to publication. The costs that had been incurred in the process of writing the book had been deducted as expenses. The Revenue argued that the rule in Sharkey V Wernher should be applied and that Innes would be required to enter the market value as a credit.

Whether or not one agrees with the decision reached in Sharkey V Wernher, it nevertheless remains difficult to reconcile the Court of Appeal decision, in Mason V Innes, where it was decided that no number needed be credited, market value or otherwise.
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