![[2024] UKUT 00266 (TCC)](https://backend.juristeca.com/files/emisores/logo_ICfrj4g.png){kind=logo}
Grounds 1 and 2 :Earnings
Grounds 1 and 2 :Earnings
Grounds 1 and 2 are based on a number of assertions about the FTT’s reasoning in concluding that “earnings” were received under section 62 ITEPA, which Mr Thornhill says were arguable errors of law. I now consider each of those assertions:
It is said that the FTT attached no weight to the directors’ obligation to pay the Trust, dismissing it at FTT[196] on the basis that it did not arise under a loan. That characterisation of the FTT’s reasoning is inaccurate. At [196] and [197], the FTT explained why it accepted HMRC’s argument, and rejected the taxpayers’ argument, stating that there was no actual loan—which is accepted by Mr Thornhill—and that on the facts the obligation to the Trust did not have the effect argued for by Mr Thornhill. This assertion does not identify any arguable error of law.
It is said that Dextra, Rangers and principle mean that the arrangements should be taxed in the same way as a loan. The Applicants’ arguments on this issue were considered by the TTT and rejected, with full reasons. Continued disagreement with the FTT does not serve to identify any arguable error of law.
It is said that the FTT misinterpreted the decision of the Supreme Court in Rangers (paragraph 198) and was led by this misinterpretation to the conclusion that the directors received earnings. As the FTT said in its PTA Decision (paragraph 13), it relied on Rangers primarily to support a purposive construction of the legislation. The FTT’s reasoning was not based on a mistaken interpretation of Rangers but on all the factors and conclusions set out at FTT[193]-[201]. Mr Thornhill said in particular that a sentence in FTT[198] showed that the FTT had misunderstood Rangers. However, when the FTT said at that paragraph that “the Supreme Court decided that the actual loans made to the employees in that case were taxable earnings where the payments were made by the employer to the employee remuneration trust”, Mr Thornhill’s reading, that the FTT thought the loans were earnings, ignores the second part of that sentence. It also ignores the fact that, read fairly and in the round, the FTT correctly directed itself as to the law on earnings and properly understood Rangers. This assertion does not identify any arguable error of law.
In HMRC’s written submissions, Mr Tolley argued that it was well established that earnings do not cease to be taxable simply because an employee is obliged to, or agrees to, apply the earnings in a particular way, citing as authority Rangers and Smyth v Stretton (1904) 5 TC 36. Mr Thornhill took issue with that argument. However, this is not a rehearing and the issue before me is whether the FTT arguably erred in law in reaching its decision. While the FTT referred to Mr Tolley’s argument on this point at FTT[17(3)] and FTT[159], in reaching its conclusion it does not refer to Smyth. This was not, therefore, an arguable error of law in the FTT’s decision on this issue.
Mr Thornhill stressed that in this case there was no pre-existing or antecedent right to earnings which was being redirected: the situation was therefore materially different from Rangers. He said that (1) an employee paid full market value for the gold, so there were no earnings when the gold was received, and (2) when a credit was made to the director’s loan account, any drawing on that account was subject to an obligation to fund the Trust, so by analogy with a loan that obligation negatived any receipt of earnings. There was “nothing magic about a loan”. He said that the FTT was wrong to rely in reaching its decision on the presence of recycling, because there was no certainty, and no finding, as to what amounts would be credited, and in what proportions to whom. It was not possible to say at the outset that the money would travel in a circle.
Mr Tolley said that Grounds 1 and 2 were unsound because they mischaracterised the FTT’s decision. In relation to the FTT’s finding re recycling, the absence of any findings as to amounts and allocation was irrelevant; the point of substance was that “what went in would come out”. Mr Thornhill’s arguments as to why earnings did not arise were inconsistent with the FTT’s findings of fact as to the operation of the scheme, and so was his argument that there was no “antecedent right” to earnings.
I do not consider that any of the points made by Mr Thornhill during the hearing before me (in addition to those on his skeleton argument and the Application) identify any error of law in the FTT’s decision on the earnings issue which is arguable, in the sense of having a realistic as opposed to fanciful prospect of success.
Mr Thornhill no longer seeks permission to appeal against the FTT’s findings regarding recycling, and I agree with Mr Tolley that it is not arguable that the FTT erred in relying on those findings because it did not make related findings as to precisely which individual would receive what amount and when. The FTT was fully aware that those details were not settled at the outset of the scheme: see, in particular, its findings at FTT[135] and [136]. The relevance of the recycling feature to the FTT’s decision on the earnings issue was as described by the FTT; its rejection of Mr Thornhill’s argument that the arrangements should be treated in the same way as a loan was “reinforced” by recycling (FTT[197]) and it formed an element of its reasoning as to why the receipt of the gold gave rise to earnings (FTT[200] and [201]). Neither of those conclusions entailed any arguable error of law because the precise basis of allocation was not known at the outset.
As I have explained above, it is not arguable that the FTT’s decision relied on an analogy with the facts in Rangers.
The argument that the FTT erred in not appreciating that there was no antecedent right to earnings is, in my view, largely an attempt to reargue the issue, but in any event it is not consistent with the FTT’s findings of fact and conclusions, in particular at FTT[195] and [200].
I do not consider that Grounds 1 and 2 raise any arguable error of law. I refuse permission to appeal on those grounds.