[2024] UKUT 00266 (TCC)

Ground 1: The Decision attaches no weight to the directors’ obligation to pay the Trust. It is dismissed on the basis that the obligation did not arise under a loan (paragraph 196 of the Decision). There is no acceptance of the Respondents’ contention (paragraph 160) that there was no intention to pay the Trust, nor could there be. The Trust was paid early, admittedly to avoid the loan charge (paragraph 143), but clearly there would have been no loan charge liability if the arrangement was that the debt would never be paid. It is accepted that the obligation was not under a loan. However, the same reasons apply to the obligation to pay the Trust as apply in the case of a loan (cp the decision in Dextra Accessories Ltd v Macdonald (Inspector of Taxes) cited in Rangers [2017] STC 1556 at paragraph 57. The decision should have treated the obligation to pay as negativing earnings. While Lord Hodge disagreed with the conclusion in Dextra, it was not in regard to loans not being earnings. The decision also questions whether a loan could be regarded as a reward. There is no reason, it is submitted, why not.

Ground 2: It is submitted that the Tribunal 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. The Supreme Court did not decide that loans were earnings. They decided that the footballer employees had arranged for their earnings to be paid to trusts which happened to loan the amounts to them. The payment of earnings occurred when the trusts were paid, not when the loans were made. This is clearly established by the concluding words of paragraph 66 of Lord Hodge’s speech (RFC 2012 (in liquidation) (formerly the Rangers Football Club Plc) v Advocate General for Scotland [2017] STC 1556 at page 1578).

If, contrary to Grounds 1 and 2, there were earnings at the outset, the Tribunal erred by holding s.222 ITEPA applied. As submitted by the Respondents (paragraph 159 of the Decision) it was pre-ordained that the gold would be sold, the cash used to pay for the gold and proceeds credited to the directors’ loan accounts. They received and could only receive cash. The readily convertible asset provisions are needed where the employee receives the asset and sells it for cash which he keeps. The directors did not keep the cash. They received credits to their loan accounts. The company could have reduced the credits by paying PAYE if there were earnings.

On deductibility the Tribunal erred by misinterpreting the decision of the Upper Tax Tribunal in Scotts Atlantic Management Ltd v HMRC [2015] STC 1321. The finding in the third bullet point at paragraph 61 on page 1336 was critical to the decision. Furthermore, the correctness of that decision has been called into question by the Court of Appeal in Hoey v HMRC [2022] STC 902 paragraph 194.