Upper Tribunal Tax and Chancery Chamber

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

Fecha: 16-Oct-2024

Reasoning of the FTT in the Decision

Reasoning of the FTT in the Decision

73.

Mr Waldegrave set out HMRC’s position as to whether the FTT had made an error of law in the alternative:

(1)

the FTT did not decide that it was the Loan that was taxable earnings of MC, or this was not part of its reasoning; or

(2)

the analysis in [33] to [37] is correct for this Loan.

74.

Mr Waldegrave drew attention to the structure of the Decision:

(1)

At [22], the FTT states expressly that the focus of its enquiry is to establish “the reason or substantial reason why the Payment of £800,000 was made by the company to the EBT”. This reflected the agreed position between the parties as to the approach to be adopted being that set out by Lord Hodge at [58] of Rangers SC. It also makes it clear that the FTT’s discussion and subsequent conclusions are about the Payment to the Trustee, not the subsequent loan. At [23] the FTT explained why it looks at subsequent events (including the making of the Loan).

(2)

The FTT deals separately with the reasons for the making of the Payment and the Loan. The FTT concluded that the Payment was made to provide the funds to the Trustee to enable the Trustee to make the Loan to MC. Whilst Mr Elliott had submitted that this was a conclusion that the Payment was not made to reward MC, Mr Waldegrave submitted that this is an artificial reading of the Decision. The FTT was saying that the Payment was to enable the Loan so we then need to look at why the Loan was made to understand why the Payment was made; the substantial reason for the making of the Payment takes its colour from what happens next.

(3)

The reasons why the Loan was made to MC are addressed at [38] to [55], and at [53] the FTT concluded that “the only reason was because of the work which MC had done over the years in building up the business…”; and this is repeated at [55] where the FTT records that “the reason why the Trustee made the Loan to MC was because of the services that he had provided to the company, and the Loan was a reward for those services”.

(4)

The FTT then, in its conclusion at [57], answers the question which it had set itself, by saying that “the Payment…was paid by the company as a reward for the services supplied by MC to the company”.

75.

Mr Waldegrave submitted that the FTT had set out its building blocks, identified the key question as the reason for the Payment, considered it was to enable the Loan, so then considered why the Loan was made to decide why, in substance, the Payment was made, concluding that the Loan was to reward the director. This is a factual and evaluative conclusion reached by the FTT. There is no challenge to the facts found or to the FTT’s evaluation. The Payment was earnings, and it doesn’t matter that it was paid to a third party. Mr Waldegrave submitted that this is the central logic to the FTT’s decision, and it is unimpeachable.

76.

The Appellant’s ground of appeal is based on its challenge to the FTT’s analysis at [33] to [37]. The heading used by the FTT is “Was the Loan a reward or benefit?” and at [37] the FTT answered this question in the affirmative. Mr Waldegrave submitted that this discussion was obiter, as was the final sentence in [56] where the FTT referred back to this discussion in its conclusion.

77.

In any event, if we were to disagree and conclude that the FTT did decide that the Loan was a payment of earnings, Mr Waldegrave submitted that that would not be an error. It is still possible for there to be a loan of an employee’s earnings and for that loan to satisfy the requirement that there is a payment of earnings. In this context Mr Waldegrave described the Loan as a soft loan, and referred to the FTT’s findings in relation to unfettered control through KC’s loan account. Such a conclusion is entirely consistent with the decision of the Supreme Court in Rangers SC – there were “real loans” to the employees in that case, and a chance that the trustee might not establish sub-trusts; none of this had mattered because of the conclusion that the payment into the trust comprised earnings.