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

The facts

The findings of fact in the FTT’s decision ([2021] UKFTT 0445 (TC), Judge Greg Sinfield and Tribunal Member James Robertson), and the FTT’s assessment of the witness evidence, are important and provide the key to this case.

A D Bly is a provider of civil engineering and groundwork contracting services which at the relevant time had 7 directors and around 220 employees. It was owned, through a holding company, by all but one of its directors. During the period in question, in May 2013, A D Bly transferred its business to a limited liability partnership (LLP) of which it became a partner (FTT decision at [2], [44] and [45]).

CHR is engaged in the wholesale travel agency business. It had 2 directors and around 20 employees. One of its directors, Mr Stephen Galpin, was its sole shareholder. Prior to the period in question, in April 2011, CHR had similarly transferred its business, including all its employees, to an LLP (FTT decision at [2], [11] and [52]).

The UURBS in issue were implemented by A D Bly in the accounting periods ended 30 November 2012 and 30 November 2013, and by CHR in the accounting periods ended 31 March 2013 and 31 March 2014. In each case the pensions were calculated by reference to a portion of the company’s pre-tax profits, with the aggregate amount being 100% of those profits in one of the years and 80% in the other. The UURBS were documented by deeds entered into with each relevant individual at or close to the end of the accounting period in question. The FTT found at [77] that these documents were in identical terms save as to names, dates and amounts. In outline, the company promised to pay a pension from a specified date, calculated as the amount that would have been payable under an annuity contract purchased for the “Payment Sum”. The Payment Sum was in turn determined by reference to the proportion of the projected profits allocated to the director or employee in question in the relevant board minutes.

The FTT heard evidence from Mr Galpin of CHR and from two directors of A D Bly. It largely discounted the evidence of one of the A D Bly directors because he was appointed after the relevant period and instead considered the evidence of the managing director of A D Bly, Mr Aaron McSkimming. The FTT also recorded agreed expert accounting evidence to the effect that FRS 17 required the UURBS liabilities to be measured on an actuarial basis by reference to estimated future cash flows (FTT decision at [12] and [23]).

The FTT observed at [13] that “the witness statements of Mr Galpin and Mr McSkimming contained many passages that were identical or materially similar save as to names, dates and amounts” and concluded at [20] that, “to a large extent, Charterhouse told both witnesses what to say and how to say it”. It provided examples referring to the appointment of a recruitment consultant to consider the appropriate remuneration package including pension provision, and to the role of UURBS as an incentive which could be implemented without a negative effect on the business. The FTT also noted at [56] that the views of Mr Galpin and Mr McSkimming about the benefit of the UURBS were formed by what Charterhouse told them and were “materially identical”, quoting a passage from Mr Galpin’s witness statement about the UURBS being “first and foremost a pension scheme”, albeit that CHR was “aware that there was an immediate tax consequence in the provision being deductible…for tax purposes”, and that the “key benefit and the reason and motivation for taking up the planning” was to retain funds in the business as working capital, which was essential to allow growth.

The directors’ witness evidence was that, before the scheme was first implemented, the board had met to discuss the remuneration package of key individuals and the need to incentivise and motivate them, and that there was a meeting with Charterhouse to discuss the issues raised only after that occurred. However, the FTT was not satisfied for either appellant that there was any such separate meeting before the meeting with Charterhouse to discuss the establishment of the UURBS (FTT decision at [26], [27], [54] and [55]).

Rather, there was a meeting with Charterhouse at which tax was discussed and which led to a letter of engagement which included a warning regarding what might be perceived as “aggressive tax planning”, a disclaimer as to Charterhouse’s inability to advise on the “suitability of an UURBS as a mechanism for providing pensions to employees”, a statement that Counsel’s advice was to be relied upon in respect of the tax consequences, and a recommendation to employ the services of a recruitment consultant (FTT decision at [27]-[31] and [57]-[59]). However, the firms apparently employed for that purpose (Synergis for the first year and FLB for the second) advised only on what they termed the “commercial suitability” of the pension provision, offering “no financial, pension, investment or tax planning advice” (FTT decision at [39] and [69]).

There were also some material discrepancies between the figures considered by Synergis and FLB as to the projected pre-tax profit and proposed allocation and those actually implemented. For the first year, Synergis advised A D Bly by reference to a profit figure of £1,040,000 and agreed with the company’s suggestion of allocating 100% of those profits in a particular way, whereas the board meeting held the following day allocated 100% projected profits of £1,300,000 and also adjusted the percentage allocated to each individual. The minutes made no reference to the discrepancies (FTT decision at [38]-[43]). For the second year, FLB advised A D Bly by reference to a proposed 80% allocation of profit of £105,000 plus a projected uplift of £3,000,000, the board meeting referred to a profit of around £2.88m, but the final accounts for the year allocated 80% of pre-tax profits of a far higher figure, £5,543,975 (FTT decision at [46]-[48]).

In the case of CHR, for the first year Synergis proposed an allocation of £125,000 to each of the two directors. The board meeting allocated 80% of estimated pre-tax profits of £312,000 three ways (FTT decision at [68]-[70]). For the second year FLB advised an 80% allocation of projected pre-tax profits of £225,000, but in the event 100% of that amount was allocated, with no explanation of the discrepancy (FTT decision at [73]-75]).