[2025] UKUT 00314 (TCC)

Mr Ripley’s application hinges on finding in FTT decision [94] an additional or free standing reason for the FTT’s conclusion on the Payment representing employment income for Mr Mellor, that reason being the absence of another instrument or mechanism enabling him to claim reward for his services.

FTT Decision [94] states:

“We reject the submission that the Payment was not intended as a reward for Mr Mellor's services. It is inconsistent with the substance of the matter, and, it seems to us, would also entail the identification of some other instrument or mechanism whereby Mr Mellor, if not rewarded for his services, was still seeking to vindicate his 'reward'.”

Mr Ripley focused on the language of the paragraph, identifying in it two distinct propositions. The first was that to find the Payment as other than employment income would be “inconsistent with the substance of the matter”. The second was that finding the Payment to be other than employment income would require the identification of an alternative means by which Mr Mellor would have been compensated for his services.

He went on to argue that the second proposition – requiring identification of such an alternative means of reward – was incorrect as a matter of law, given that directors do not always require payment for the services they provide to their companies. He referred in support of this argument to HMRC v Marlborough DP Ltd [2024] UKUT 98 (TCC).

Ms Vicary argued that FTT Decision [94] simply followed on from the factual conclusion already reached by the FTT that the Payment was employment income, which conclusion had taken into account all of the relevant factors. She referred to FTT Decision paragraphs [87]- [93] and also [95] which she said made it clear that the FTT had looked at all of the facts and reached its conclusion accordingly. FTT Decision [94] was, in her view, simply affirming the conclusion that had been so reached. It did not nor did it intend to set out the grounds (whether free standing or not) on which those conclusion had been reached.

Having considered Mr Ripley and Ms Vicary’s submissions I consider that FTT Decision [94] does not contain a free-standing ground for the FTT Decision, that ground being the need for a document or instrument providing for Mr Mellor to be rewarded for his services to EAL, nor in my view does it seek to set out in whole or part the grounds on which the FTT Decision was reached.

FTT Decision [94] must be seen in the overall context of the FTT decision and the FTT’s findings of fact.

When seen in that context it is apparent that the FTT’s comments do not amount to either a general point of legal principle or an explanation of its reasoning but relate instead to its findings of fact as to the substance of the arrangements and the source of the payment made to Mr Mellor. I note in particular the following paragraphs of the FTT Decision:

“In our view and looked at in the round, the source of the Payment was Mr Mellor’s employment with EAL. Payment to Mr Mellor:

(1)

was a payment “from” his employment with EAL for income purposes;

(2)

Was a remuneration or profit “derived from” an employment for NICs purposes” [88]

“As a matter of substance, we are entirely satisfied that the Payment as coming into the hands of Mr Mellor was Mr Mellor’s remuneration for his services to EAL; or put differently as a reward to Mr Mellor for his services as a director of EAL [93]

Having concluded as a matter of fact that the Payment was in substance in respect of Mr Mellor’s employment, my reading of the Decision is that the FTT then notes in FTT Decision [94] that if the Payment was not for those services then, in the circumstances, it would have expected there to be some other means by which Mr Mellor would have sought reward for those services.

In other words, having weighed up the information before it, the FTT’s factual conclusion was (i) that Mr Mellor expected to be rewarded for his services to EAL and (ii) the Payment received was for those services. Consistently with this, the FTT then states in [94] that (i) as well as being consistent with the substance of the matter, (ii) there is no other instrument or mechanism in place under which he would be able to “claim his reward” for the services supplied. In my view, that is not the same as identifying the absence of such an instrument or mechanism as an additional or free-standing reason for concluding that the Payment was Employment Income, it is simply affirming the conclusion already reached. As Ms Vicary put it in her skeleton argument:

“.. read in context, the sentence simply emphasises the veracity of the FTT’s earlier stated conclusions that the Payment was remuneration for Mr Mellor’s services to EAL…”.