TC09557 - [2025] UKFTT 00750 (TC)

A Guernsey-resident trust (“the Trust”) was set up with the Company as settlor and the Company’s employees as beneficiaries. The Company made an initial contribution to the Trust of £100 by way of gift.

The Company transferred £740,000, and the Trust transferred £100, to a company called International Employment Services Ltd (“IES”).

The Company funded the £740,000 by borrowing that amount from a company called Havelet Finance Ltd (“HFL”). HFL paid the £740,000 directly to IES.

IES used the £740,100 to buy gold which it held as nominee for Ms Tonkin. It immediately sold the gold and, at Ms Tonkin’s direction, transferred £740,000 to HFL (thereby repaying the Company’s loan), and £100 to Ms Tonkin.

Ms Tonkin promised to pay £740,100 to the Trust within ten years.

As a result of Ms Tonkin repaying the Company’s debt to HFL, the Company owed Ms Tonkin £740,000. This amount was credited to her director’s loan account and was available for her to draw down.

The Company’s Board of Directors held a meeting on 20 April 2012. The meeting was attended by Ms Tonkin, Mr Husain and Mr Dore. According to the minutes, the purpose of the meeting was to “discuss employee reward arrangements for the year ending 30 April 2012”.

It was resolved at the meeting to set aside £740,000 “for awards to be made to key employees in respect of their service for the year ending 30 April 2012”. The minutes record that:

“Ms A Tonkin confirmed that he [sic] has been informed of (on behalf of the company) various ways in which funds could be used to benefit employees. Ms A Tonkin mentioned that he [sic] has received guidance that it was possible through a certain structure to provide benefits to individual employees and that this could defer or in certain circumstances even eliminate income tax and NIC, yet allows value to be passed to the employee”.

The minutes then record a discussion about which employees and directors should be included in the employee reward arrangements for the year, after which a provisional “list” was drawn up containing just one name: Ms Tonkin. The intention of all concerned was that only Ms Tonkin would benefit from these arrangements.

Three Board meetings took place on 23 November 2012: one at 2.30pm, one at 3pm and one at an unspecified time.

The purpose of the meeting at 2.30pm was, according to the minutes, “to consider and, if thought fit, to:

The Company was authorised to pay an initial contribution of £100 to the Trustee by way of gift. This payment was subsequently made.

The minutes of the meeting at 2.30pm also recorded that:

Ms Tonkin was declared to be a discretionary beneficiary of the Trust.

During the meeting at 3pm, it was resolved that a Deed of Transfer of Assets (“DOTA”) would be executed on behalf of the Company. The minutes of the meeting record that the DOTA was “a suitable mechanism to reward employees for their services.” The terms of the DOTA would include the following:

The minutes of the meeting at 3pm also recorded that the Company had been advised that it should obtain a corporation tax deduction for the £740,000. It was also expected that the transfer of assets to Ms Tonkin would result in an obligation on the Company to withhold income tax and NICs under PAYE, but only in respect of the £100 paid by the Trust.

The minutes of the meeting that took place at an unspecified time record the Company’s intention to borrow £740,000 from HFL. The loan was to provide the Company with funds to pay for the provision of assets by IES to Ms Tonkin.

Ms Tonkin explained that the reason for borrowing the money from HFL, rather than using the Company’s own funds, was that from her perspective IES was an unknown third party and she did not feel comfortable transferring that amount of money to an entity with which she was not familiar. Mrs Cook suggested that this seemed unnecessarily complex when the Company already had the money, but Ms Tonkin said that it only involved her signing a couple of extra documents. We accept Ms Tonkin’s evidence that the reason for the Company borrowing money from HFL was that she did not want to transfer a large sum to an unknown third party.

Ms Tonkin, in her capacity as director of the Company, entered into an engagement agreement with the scheme promoter on 23 November 2012 (the same day as the three Board meetings). This document includes a section headed “risks”, which lists a number of challenges that HMRC may make to the “strategy”. The document states that if these challenges are successful the consequence could be:

The engagement agreement gave clients a number of options regarding the purchase and delivery of the gold. The option selected by Ms Tonkin was for IES to buy gold for the Employee (ie Ms Tonkin), to sell the gold at the earliest opportunity, and deliver the proceeds to Ms Tonkin.

The agreement noted that the “strategy” is a notifiable arrangement for the purposes of the DOTAS rules, and so had been disclosed to HMRC, for which a DOTAS scheme reference number had been, or would be, obtained.

In the same agreement, Ms Tonkin ticked a box which stated that she had “declined to receive tax advice from a tax adviser” but that she was an experienced business person familiar with tax planning issues, had read and understood the technical checklist provided by her “introducer”, and fully understood the risks involved. She further agreed to indemnify IES and the Trustee in respect of any claim resulting from any PAYE, NICs or other liability resulting from any of the transactions involved in the “strategy”.

Ms Tonkin’s oral evidence, which we accept, is that by ticking this box she believed she was confirming that she had not received advice from an adviser connected with the scheme promoter. She had, in fact, received advice in connection with the scheme from both Mr Husain and Mr Dore.

On the same day (23 November 2012), Ms Tonkin, this time in her capacity as employee, wrote to IES enclosing the executed DOTA, and giving IES authority to complete the figure for the quantity of gold bullion to be transferred, on the basis that “I fully understand that it is not possible for IES to quantify the amount of bullion to be transferred until the date of the transfer”.

Also on 23 November 2012, Ms Tonkin signed an “instruction to sell”, addressed to IES, instructing them to sell the gold “at best” and pay £740,000 to HFL, with the balance to be transferred to her own account.

On 4 December 2012, the Company entered into the loan agreement with HFL. HFL agreed to make a loan to the Company of £740,000, and to pay that amount directly to IES.

Also on 4 December 2012, the Company and Trustee entered into a deed of settlement to establish the Trust, with the Company as settlor. There was a list of beneficiaries including the Company’s employees, office holders, former employees and former office holders, as well as those persons’ spouses, surviving spouses, children, remoter issue and dependants, and a default beneficiary (the Red Cross). However it was common ground (and we find) that the intention of all concerned was that Ms Tonkin would be the sole beneficiary of the Trust.

The DOTA was also executed on 4 December 2012, by the Company, IES, the Trustee, and Ms Tonkin. The terms of the DOTA included the following:

Also on 4 December 2012, IES wrote to Ms Tonkin to inform her that they had implemented her instruction to sell, and that the value received net of brokerage costs was £740,100.

Following the sale of the gold, IES transferred £740,000 to HFL (thereby repaying the loan it had made to the Company) and £100 to Ms Tonkin.

The Company then credited Ms Tonkin’s director’s loan account with £740,000, which was the amount owed to her following the repayment of the loan from HFL.