Upper Tribunal Tax and Chancery Chamber

UT (Tax & Chancery) UT-2024-000088 - [2025] UKUT 00374 (TCC)

Fecha: 15-Oct-2025

ISSUE 1

ISSUE 1

Introduction

15.

This issue is essentially one of statutory construction and the application of the statute as properly construed. HMRC contend that the Payment constitutes “earnings” for the purpose of s.62 ITEPA 2003, and specifically that it is “an emolument of the employment”. In answering this question:

(1)

we must determine whether the receipt in issue was “paid to him in return for acting as or being an employee” (Hochstrasser (Inspector of Taxes) v Mayes [1960] AC 376, 391-92).

(2)

In Shilton v Wilmshurst [1991] 1 AC 684, 689, Lord Templeman noted that emoluments were not limited to payments made in the course of employment but included those paid as a reward for past services, or as an inducement to enter into a contract of employment or as an inducement to continue to perform services. He held that it was necessary to distinguish between “an amount which is derived ‘from being or becoming an employee’ on the one hand, and an emolument which is attributable to something else on the other hand”.

(3)

In Bray v Best [1989] 1 WLR 167, 176-77 Lord Oliver reformulated the question as being “whether a particular payment arises from the existence of the employer-employee relationship” or “from ‘something else’.”

(4)

The causal link between the benefit in issue and the employment relationship which is necessary for the benefit to count as “an emolument of the employment” was described as one of “substantial cause” and “a sufficiently substantial reason” (Kuehne + Nagel Drinks Logistics Ltd v Commissioner for HM Revenue & Customs [2012] EWCA Civ 34, [56]-[57] and [60]).

(5)

In RFC 2012 plc v Attorney General for Scotland [2017] UKSC 45, [64], the Supreme Court noted that “the relevant provisions for the taxation of emoluments or earnings were drafted in deliberately wide terms to bring within the tax charge money paid as a reward for an employee’s work”.

(6)

Finally, when approaching this question, the court is “not to be restricted to the legal form of the source of the payment but to focus on the character of the receipt in the hands of the recipient” (HMRC v PA Holdings Ltd [2011] EWCA Civ 1414, [37], and, to similar effect, [39]). In that case it was also observed that “for at least sixty years courts have identified the character of a receipt in the hands of the recipient by looking at its substance and not its form” ([41]).

16.

It was not part of HMRC’s case at the FTT that Mr Saunders was taxable on both the value of the vested rights when he obtained them, and also on the Payment, and HMRC’s skeleton argument for this hearing similarly did not put forward that argument. However, in the course of oral submissions on behalf of HMRC, Ms Hicks said that a double charge was possible. We disagree. It would take clear words indeed before legislation would allow the employee to be taxed on both the value of the right received and its subsequent realisation (see by analogy Forde and McHugh Ltd v Revenue and Customs Commissioners [2014] UKSC 14, [15]-[16]). A court would also seek a clear statutory basis for making the taxable event depend on whether or not the employee chose to realise the right conferred in some way other than awaiting the occurrence of the contingencies (not least because it would involve differential tax treatment of employees in receipt of the same right).

17.

Subject to two points to which we will come, approached by reference to the principles set out above, and on the basis of the agreed facts, we agree with the FTT that the answer to the question “whether the payment of £1,236,956 received by Mr Saunders from HAUKL constitutes ‘employment income’ for the purpose of s.62 of ITEPA 2003” is clearly yes. We can do no better than adopt the FTT’s summary of its reasons for reaching that conclusion:

(1)

The SARs were granted to Mr Saunders and vested in connection with his employment (Decision, [31]).

(2)

The SARS were granted to employees and incentivised them to remain employed, with rights vesting as particular periods of employment were completed, and all rights being forfeit if the employment was terminated for cause (ibid).

(3)

There was a temporal limit of 2 years between the end of Mr Saunders’ employment within which a Sale or Liquidity Event had to take place (ibid).

(4)

The Payment was paid pursuant to and in accordance with the terms of the SAR Agreement ([32]).

(5)

Mr Saunders’ rights under the SAR Agreement were conditional on his having been a “Good Leaver” (ibid).

18.

The two points to which we referred above are (a) an argument of principle, and (b) the binding effect of the decision in Abbott v Philbin. They are closely related, because that same issue of principle is also at the heart of the decision in Abbott v Philbin.