[2024] UKUT 00266 (TCC)

Wired Orthodontics Limited (“the Company”) established an employee benefits trust (“the Trust”) to which it undertook to contribute £300,000 within the next 10 years. The Company then entered into agreements with a company called Asset Hound Ltd (“Asset Hound”) for the purchase of £300,000 worth of gold bullion for Ms Bessant and Mr Hutchinson (“the Directors”), who were its shareholders and directors as well as employees of it. The gold was immediately sold and the Directors satisfied the Company’s obligation to Asset Hound to pay for the gold by the use of the proceeds of its sale. In so doing a corresponding credit was created on their directors’ loan accounts which they later drew upon by payments in cash to them. At the same time as the purchase of the gold the Directors agreed to assume the obligation entered into by the Company to pay £300,000 to the Trust. We refer to the transactions taken together as “the Scheme”.

HMRC say that the Directors received money or money’s worth as a reward for the provision of the services which constituted “earnings” in relation to their employment with the Company, notwithstanding their obligation to pay sums to the Trust. As a result HMRC say that:

Either:

the Company was obliged to account for PAYE income tax and NICs on the earnings; and

the Directors, having failed to make good the income tax in question to the Company are liable to a further income tax charge under s222 Income Tax (Earnings and Pensions) Act 2003 (“ITEPA”);

the Company is liable to tax on the value of the benefit (the gold) conferred on the Directors pursuant to s464A Corporation Tax Act 2010 (“CTA 2010”);

the Company is not entitled to a corporation tax deduction for the relevant expenses in the relevant accounting periods because:

the expenses were not recognised in accordance with generally accepted accounting practice (“GAAP”);

the expenses were not incurred wholly exclusively for the purposes of the Company’s trade; and/or

any deduction for the expenses was deferred pursuant to section 1290 and/or s1288 Corporation Tax Act 2009 (“CTA 2009”).

Finally, HMRC say that if their assertions regarding the taxation of the Directors and the Company are not correct, the general anti-abuse rule (“GAAR”) applies such that the tax advantages arising from the arrangements should be counteracted.

The Company made payments of earnings for income tax and NICs purposes (the “earnings” decision).

Section 222 ITEPA 2003 (readily convertible assets) applied to the Scheme (the “section 222” decision).

The payments by the Company were not deductible for corporation tax purposes because they were not made wholly and exclusively for the purposes of the Company’s trade (the “deductibility” decision).