CA-2024-001410 - [2025] EWCA Civ 1443

Making of “employee benefit contributions”

For the purposes of section 1290 an “employee benefit contribution” is made if, as a result of any act or omission—

property is held, or may be used, under an employee benefit scheme, or

there is an increase in the total value of property that is so held or may be so used (or a reduction in any liabilities under an employee benefit scheme).

For this purpose “employee benefit scheme” means a trust, scheme or other arrangement for the benefit of persons who are, or include, present or former employees of the employer…”

As can be seen, s.1290 will operate to defer deductions for “employee benefit contributions” until the period when benefits are provided to employees, so achieving an alignment between the timing of the deduction and taxation in the hands of the recipient.

The relevant individuals in this case will not be taxed on any pensions from the UURBS unless and until they receive them, because the mere promise to pay does not create taxable income. HMRC maintain that the purpose of s.1290 is to prevent a deduction in those circumstances, and that ss.1290 and 1291 should be interpreted to give effect to that purpose. HMRC say that the UT’s decision that the UURBS was not an “employee benefit scheme” on the ground that “trust, scheme or other arrangement” (see s.1291(2)) is limited to a trust or similar arrangement is too narrow an interpretation. They also maintain that the UT erred in holding that the UURBS did not give rise to an “employee benefit contribution” within s.1291(1), because it is not an abuse of language to say that the binding promise to pay a pension was “held, or may be used, under” the scheme. Further, the UT wrongly disregarded the fact that the concept of “employee benefit contribution” does not require a payment or transfer of property, wrongly applying NCL CA (see [20] and [21] above).

I cannot accept HMRC’s arguments. The UURBS does not fall within s.1290 on any natural interpretation of that provision and s.1291. A consideration of the broader statutory context confirms the conclusion that s.1290 was not intended to apply in this situation.

The concept of “employee benefit contribution” is not directly defined, but s.1291(1) provides a complete description of when one is to be treated as made. It requires an “act or omission” as a result of which property is “is held, or may be used, under an employee benefit scheme”, or that there is an increase in value of property “so held” (or a reduction of liabilities).

Leaving to one side for a moment whether the UURBS is an employee benefit scheme, the references at paragraphs (a) and (b) of s.1291(1) connote some form of identifiable property (a “pot” of assets) that is made available for the purpose of the scheme, either by being created by the contribution or by its net value being increased. I do not accept that the reference to “property” can be read as extending to any of the company’s own assets, present or future, that might in due course be used to satisfy the unsecured liabilities under the UURBS. This is further supported by s.1290(2)(a), which refers to providing benefits “out of” the contributions.

I also do not agree with the alternative submission of Ms Rebecca Murray (for HMRC) that the relevant “property” was the chose in action held by the employees in the form of their rights under the UURBS. It is not a natural use of language to describe those rights as property held “under” the scheme, particularly when the word “held” is read in its context “held, or may be used, under”, still less would it be natural to apply the label “employee benefit contributions” to the creation of such property. They represent the employee’s rights in or against the scheme, not the employer’s contributions. As David Richards LJ said in NCL CA at [77]:

“‘Employee benefit contributions’ is not an empty vessel or algebraic symbol, dependent wholly on section 1291(1) for any meaning.”

As to whether the UURBS is an “employee benefit scheme” within s.1291(2), while I agree that the concept of “arrangement” may be broad it must be read in its context. As Lord Hamblen and Lady Rose said in NCL SC at [72]:

“The term ‘other arrangement’ must be something akin to a trust or scheme…”

While in NCL it was common ground that the EBT that granted the options in question was an employee benefit scheme (see NCL CA at [71]), the options were held by the Supreme Court not by themselves to be such a scheme. Similarly, what HMRC rely on here are the contractual promises made to the individual employees, in respect of which the accounting provisions were made. There was no broader trust or scheme that existed apart from those contractual undertakings. Those promises are not, even in combination with each other, akin to a trust or scheme.

HMRC criticise the UT’s reliance on NCL, in particular NCL CA. Ms Murray pointed out that in NCL the grant of the options was itself a taxable emolument in the hands of the employees, albeit in fact one benefiting from a statutory exemption (see NCL SC at [61])), whereas in this case the pension promise was not taxable. That is so and it is also true that the Supreme Court referred to the fact that the options comprised emoluments in concluding that s.1290 did not apply: see at [70]. But it does not follow that the UT was not entitled to have regard to aspects of the reasoning in NCL which do apply in this case.

In particular, the reasoning of David Richards LJ in NCL CA at [67]-[78], including his approval of the FTT’s decision in that case, is illuminating and I have drawn from it. As the UT observed, NCL SC included a general endorsement of the reasoning below at [19] and I do not detect that this section of the Court of Appeal’s judgments was disapproved (see also at [67], referring to the Court of Appeal’s reasoning on this issue). Further, aspects of the Supreme Court’s decision provide additional assistance and guidance, in particular the citation of part of the FTT’s reasoning at [66], the reference to the options not being “held” by the employees under the employee benefit scheme at [70] and the point already referred to at [72] about the term “other arrangement”. It is also worth noting the Supreme Court’s refusal at [73] to accept HMRC’s broader policy-based argument:

“We do not accept [Counsel for HMRC’s] description of sections 1290-1297 as a statutory code aimed at ensuring that relief for employee benefit contributions is only available if and when matched by a corresponding charge to income tax and national insurance contributions.”

While Lord Hamblen and Lady Rose went on to refer to the specific exemption that led to the grant of the options not being taxable in that case, the general point applies, namely that the legislative code does not contain an overarching rule that deduction and taxation must be aligned in all cases.

Ms Murray also sought to rely on Explanatory Notes to clause 232 of the Finance Bill 2004, which became s.245 FA 2004 and which amended the immediate predecessor to s.1290 in Schedule 24 to the Finance Act 2003. I do not read those notes as providing any assistance about the treatment of unfunded pension arrangements, even if the notes are proper aids to interpretation. As to whether they are, as explained most recently in Alexander Beard vRevenue and Customs Comrs [2025] EWCA Civ 385, [2025] 3 WLR 645 at [64]-[68], legislation such as the CTA 2009 which is the product of the Tax Law Rewrite Project should generally be interpreted using the approach adopted to consolidation statutes, without referring back to legislative antecedents. This is subject to a point about earlier case law, but that is not in issue here. The difficulties are well-illustrated in this case by the point that s.245 FA 2004 was not the last legislative word on the topic before s.1290 was introduced, since material amendments were made by the Finance Act 2007.

In fact, however, there is a provision of FA 2004 which (unlike s.245) does remain operative and which provides additional support for the conclusion that I have reached, namely that s.1290 is not apt to cover unfunded arrangements such as the UURBS. This is s.246 FA 2004, which provides as follows: