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Sloane Robinson Investment Services Limited v HMRC – share benefits were ‘earnings'

This decision of the First Tier Tribunal illustrates the principle that, if a taxpayer is already in receipt of earnings, applying the rules in s18 ITEPA 2003, the fact that the funds involved are subsequently delivered by way of dividends (as first intended) or, as liquidation proceeds (as occurred) of forfeitable shares in a specially-formed company, does not alter their character in the hands of the recipients as money earnings. In this case the employees concerned were directors and accordingly rule 3 of s 18 ITEPA 2003 applied so that the time of receipt of the earnings for the purposes of the general earnings charge was when the amounts were credited in the accounts of the company. This pre-dated the acquisition of the shares, used as the mechanism for delivery of the bonuses. The Ramsay doctrine was not relevant on the facts but, in any event, given that, in consequence of a change to the legislation announced part-way through the process, the delivery mechanism was unexpectedly changed from that of a payment of dividends to a liquidation of the company concerned, it was held that the doctrine would not be applicable : “ the cases do not….include any example of a composite transaction or series of transactions in which a decisive feature of them was not at least envisaged as a possibility at the outset”. This was not the case here.