Upper Tribunal Tax and Chancery Chamber

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

Fecha: 16-Oct-2024

Arrangements concerning the EBT

Arrangements concerning the EBT

19.

Documents establishing the EBT were tabled at a board meeting of the Appellant on 17 November 2010. The trust deed establishing the EBT is dated 18 November 2010 (the “Trust Deed”) and the Beneficiaries were the “bona fide employees” of the Appellant together with their relatives ([15(15)-(16)]).

20.

On 22 November 2010:

(1)

the Appellant issued a memorandum to all staff, telling staff that the Appellant had decided to implement a new employee incentive arrangement;

(2)

the directors wrote to the Trustee sending it a copy of the Appellant’s board minutes approving the contribution of £800,000 to the EBT and “drawing the Trustee’s attention” to the possibility that the Trustee might use the contribution to make loans on appropriate terms to employees or directors and pay bonuses and provide other benefits; and

(3)

MC wrote to the Trustee applying for a loan of £800,000 to buy 261,437 “A” shares in the Appellant (the “A Shares”). That letter stated he appreciated that the Trustee would require security for this loan ([15(17)-(19)]).

21.

By a letter dated 23 November 2010 the Trustee informed MC that his request for a loan had been approved ([15(20)]).

22.

On 25 November 2010:

(1)

MC signed a loan agreement with the Trustee (the “Loan Agreement”). The terms were that the Trustee would lend £800,000 to MC (the “Loan”), which was repayable on the fifth anniversary date of the Loan Agreement. It was to be secured by a charge on MC’s interest in the A Shares and the Loan was interest-free (save if MC was a bad leaver).

(2)

MC and the Trustee entered into a share charge deed which referred to the Loan Agreement and charged the A Shares held by MC ([15(21)-(22)]).

23.

On 26 November 2010 MC and KC entered into a share sale agreement by which MC agreed to purchase the A Shares from KC, and this was completed by a stock transfer form ([15(23)-(24)]).

24.

By the time that the arrangements were implemented in November 2010, it had been agreed that the funds contributed to the EBT would be lent to MC and that he would use them to purchase shares from KC ([16(2)]). Prior to making the Loan and entering into the share charge deed the Trustee had valued the A Shares at £800,000 ([16(6)]).

25.

There were various bank transfers on 26 November 2010, which included a transfer of £800,000 into KC’s bank account with reference “EBT…Mark Currell” and a transfer from KC to the Appellant ([15(25)]. This transfer from KC was treated as a loan from KC to the Appellant which could be repaid to her whenever she wanted ([16(3)]).

26.

MC’s evidence was that he understood that the Loan was repayable in accordance with the terms of the Loan Agreement ((15(28)]). His personal bank account showed that had the Loan been called in in 2015, MC had personal resources to settle it ([15(29)]). The FTT accepted that the Loan was a genuine loan with a real repayment obligation, that MC had the independent funds to settle it on the repayment date and that MC was fully conscious of his obligation to repay on that date ([36(10)]).

27.

Witness evidence (including that of MC) was that the reason why the Trustee did not ask MC to repay the Loan in November 2016 (which we assume should read November 2015 based on the repayment date under the Loan Agreement and the finding made by the FTT at [16(8)]) was because of a concern about double taxation. HMRC had already opened an enquiry into the arrangements and had issued the determinations in March 2015. The Trustee and the Appellant were concerned that if the money had been repaid and then used to pay bonuses there would have been tax on the payment of those bonuses ([15(31)]). The FTT accepted that the reason why the Trustee made no demand for repayment in November 2015 was because of the concern about double taxation ([16(8)]).

28.

During 2019 MC repaid £50,000 of the Loan and this has been used to pay bonuses ([15(35)-(36)]).