UT (Tax & Chancery) UT/2023/000098 - [2024] UKUT 00404 (TCC)

The FTT stated it would use the expression “reward or benefit” as shorthand for the provisions of s62 as interpreted by the Supreme Court in RFC 2012 plc (in liquidation) (formerly The Rangers Football Club plc) v Advocate General for Scotland [2017] UKSC 45 (“Rangers SC”).

The FTT set out the issue as:

“14.

The main issue for determination in this appeal, therefore, is whether the sole or a substantial reason why the Payment was paid by the company to the EBT as part of the arrangements was because it was a reward or benefit for MC for his exertions as an employee/director of the company.”

The FTT stated that the focus of its enquiry must be to establish the reason or substantial reason why the Payment of £800,000 was made by the Appellant to the EBT. When considering this enquiry, they can also consider subsequent events. This is simply viewing the facts realistically and applying a purposive approach to the interpretation of the relevant legislation ([22] - [23]). The proposed approach was then set out:

“24.

We start therefore by looking at the reasons why the company made the Payment, and then move on to consider the reasons why the EBT made the Loan to MC.”

The substantial reason for the Appellant making the Payment on 26 November 2010 was to enable the Trustee to fulfil the commitment it had made to MC to lend him £800,000 ([30]). The making of the Loan to MC was “prewired” ([31(8)]). The Appellant required that £800,000 of working capital in its business and it was inevitable that it would find its way back into the Appellant once it had been paid to the EBT ([31(15)]).

A genuine loan of money with real repayment obligations can, as a matter of legal principle, comprise a reward or benefit; and here the Loan was a reward or benefit ([36]).

The only reason for the Trustee exercising its discretion to provide the Loan of £800,000 to MC was because of the work which MC had done over the years in building up the business, as a sole trader then in partnership and then via the Appellant ([52] to [53]).

The FTT then set out its conclusion:

“56.

We have found that it was inevitable, at the time at which the Payment was made by the company to the EBT, that it would be paid by the Trustee to MC by way of the Loan. We have also found that it was more likely than not that the Loan was paid to MC as a reward for the services which he had provided to the company. In our view there is no legal principle which prevents a genuine money loan on commercial terms with a real repayment obligation from being a reward or benefit.

57.

In these circumstances [it] is our view that the Payment, therefore, was paid by the company as a reward for the services supplied by MC to the company. It therefore comprises earnings and thus taxable as asserted by HMRC.”

This was followed by a brief discussion of what were defined as “the Baxendale Walker cases” and addressing the Appellant’s submissions on double taxation.