Upper Tribunal Tax and Chancery Chamber

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

Fecha: 16-Oct-2024

Correct outcome on re-making the Decision

Correct outcome on re-making the Decision

78.

If we conclude that there is an error of law and we decide to set aside the Decision, HMRC’s position is that we should re-make the decision and conclude that the Payment was taxable earnings of MC. Mr Waldegrave submitted that we are equipped to make that decision and we should make that decision, relying in particular on the three findings of fact identified as critical by HMRC at [64] above (as to the purpose of the Payment and the Loan, prewired and unfettered control). Mr Waldegrave submitted that the legal analysis is then identical to that in Rangers SC.

79.

Mr Waldegrave recognised that we may go further, and look at the facts in more detail. Mr Waldegrave took us to the summary of his submissions to the FTT, which were recorded at [20], and emphasised:

(1)

Apart from MC’s role as director of the Appellant, there is no other competing explanation for why the money was provided to him. He is a shareholder (31%), but the other shareholders did not receive anything.

(2)

Conversely, as set out at [20(29)] to [20(37)], MC was the driving force of the business, had worked extremely hard, yet most profits were reinvested – it was unsurprising that MC should seek some substantial reward. There is no need for HMRC to show that MC would have received £800,000 as salary, or had sacrificed that amount.

80.

Mr Waldegrave submitted that we should not follow the approach adopted in Strategic Branding or CIA. Those are decisions of the FTT and not authoritative and in any event they are fact-sensitive. Addressing the decision in Strategic Branding, Mr Waldegrave drew attention to [194] of the FTT’s decision in which the FTT had referred to HMRC pursuing arguments on general earnings and Part 7A in the alternative, but that “it was clear that their primary submission was that the loans …were employment income within Part 7A”; Mr Waldegrave submitted that this may have influenced the approach taken by the FTT. Furthermore, whilst it is clear from the summary of HMRC’s submissions at [199] that HMRC were arguing that the contributions to the trust were earnings, the conclusion of the FTT at [206] is framed by reference to the loans not being earnings. Mr Waldegrave submitted that the FTT had not engaged with HMRC’s submission in that case that the payment to the trust was earnings; and if the FTT was saying that a contribution to a trust cannot be earnings because there is then a genuine loan from the trust, that must be wrong based on Rangers SC. Mr Waldegrave submitted that similar points arose in relation to the FTT’s decision in CIA.

81.

There is a single amount of money, placed at the unfettered control of MC, that was referable to his work as a director. Mr Waldegrave submitted that it is difficult to see that it should not be taxed in these circumstances.