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

The FTT found that the reason why the Payment was made by the Appellant to the Trustee was to enable the Trustee to make the Loan to MC ([30] and [32]). As the FTT put it (at [31(16)]) the arrangements were “prewired” - there was never any doubt that the funds comprised in the Payment would be lent by the Trustee to MC.

The FTT concluded that the Loan was made to MC because of the services which he had rendered (in his role as a director) to the Appellant over many years ([53] and [55]).

Although the £800,000 was in fact lent back to the Appellant, it could be withdrawn and used as MC wished, with there being “no fetter” on such use ([36(13)]). Whilst Mr Elliott had submitted that MC did not have unfettered access to the funds, Mr Waldegrave submitted that the FTT has found that he did have such unfettered access, and these were findings which were open to the FTT to make. The finding at [36(13)] that the “benefit to MC was that it could then be withdrawn and used as he wished. There was no fetter on the use of the money withdrawn from KC’s loan account” (emphasis added) is consistent with the finding at [50] that “It is clear from the evidence that KC and MC acted together in building up the business of the company and we see no reason why, in purchasing the shares from KC (who was inevitably going to contribute the proceeds to the company) MC had any misgivings that KC would not draw down on her loan account for their mutual benefit”.

At [15(9)], having found that the business had a culture of paying sizeable bonuses to its contract managers, the FTT also found that bonuses were paid by the Appellant to its employees in all of the years following the setting-up of the arrangements. Mr Waldegrave submitted that this undermines any submission that the EBT was a general bonus pot for employees as a whole.

At [15(11)] the FTT made findings as to the salary and dividends received by MC. Mr Waldegrave submitted that these were modest, and this supports the FTT’s conclusion at [54(11)] that MC had been “under rewarded”. The findings at [15(12)] and [15(13)] (that the Appellant would not have paid £800,000 as remuneration to MC and it didn’t replace remuneration which MC had sacrificed) do not really matter - HMRC’s position was that it is not necessary to show that there is first remuneration payable to MC which is then diverted.

On cash movements, Mr Waldegrave took us to MC’s bank statement which shows a payment in of £800,000 and a payment out of £800,020 (with the £20 being identified as a charge for a CHAPS transfer). Mr Waldegrave submitted that there is a missing link in the findings of fact by the FTT at [15(25)]; but this does not mean that the money by-passed MC.

The FTT’s finding at [16(8)] that the reason why the Trustee made no demand for repayment in November 2015 was because of the concern about double taxation needs to be viewed in the context of the FTT’s other findings. In particular, the FTT had also found that the Trustee would not consider paying bonuses to employees of the Appellant unless approached to do so ([16(9)]); the Trustee was effectively reactive as regards applications to pay bonuses ([15(34)]); and any significant decisions which the business had to make would have been approved by MC ([15(6)]). Read as a whole, Mr Waldegrave submitted that MC drove the decision-making and effectively had control over the extent to which the loan would ever be repaid.