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Rangers Case and EBTs

HMRC have lost their appeal to the Upper Tier Tax Tribunal in Scotland (Comrs for HMRC and Murray Group Holdings Limited and others [2014] UKUT 0292(TCC)) which has held that the majority in the First-Tier Tribunal did not ‘fall into error’ in considering and applying the Ramsay principle (see Winter 2012 Bulletin).

HMRC had sought to establish that earnings were paid to employees when monies were paid to each sub-trust or that earnings were paid when loans were advanced to employees on the basis that the trusts and loans were artificial and could be ignored for tax purposes: the monies advanced could, according to HMRC, have been and were enjoyed as earnings, not loans. However, the FTT had identified the applicable law, applied a purposive construction to the relevant statutory provisions and taken a realistic view of the facts : there was no payment of ‘earnings’ nor a payment in the form of monies at the unreserved disposal of the employees who did not have absolute entitlement to the monies.

Whilst the FTT had accepted there was an element of orchestration between the employer and employees, this did not result in the employee having power to obtain anything more than a loan. The FTT had not erred in law and had not overlooked relevant arguments. They had made findings of fact relevant to an understanding of their decision and their decision could not be challenged on the basis of the principle in Edwards v Bairstow. There was no present entitlement to earnings when the payments were advanced, nor did they have a choice between payroll payments and trust payments. Apart from the remission to the FTT of issues relating to (a) certain termination payments and (b) the question of whether, in relation to payments of guaranteed bonuses and any termination payments found by the FTT to be taxable, such payments should be ‘grossed-up’ for tax purposes, the appeals of HMRC were dismissed.

The fact that HMRC have failed to secure a decision of the UTT supporting their long-held contention that, prior to the advent of the ‘disguised remuneration’ rules in Schedule 7A ITEPA 2003, payments allocated, or advanced on loan to, employees by the trustees of an employees’ trust are properly to be treated as taxable earnings (see HMRC Spotlight 5) undermines the basis on which HMRC has threatened, and is taking, litigation against so many employers who chose to provide benefits to employees in this manner (see further the Winter 2012 Bulletin). It remains to be seen to what extent HMRC might now modify its approach in ongoing settlement negotiations.