This case concerned the deductibility for corporation tax purposes of payments made to Employee Benefit Trusts (“EBTs”). Perhaps unusually, it was the taxpayers who here sought to argue that – following the decision in Murray Group Holdings (the “Rangers” case) – payments to EBTs ought to have been treated as earnings at the time they were made. The result of this would have been to allow the companies involved to deduct the payments made to EBTs for the purpose of calculating their liabilities to corporation tax.
In this case, the First-Tier Tribunal (“FTT”) concluded it was possible the payments to the EBTs resulted from the beneficiaries’ position as shareholders in the appellant companies, not as directors or employees. As the taxpayers failed to produce evidence that the directors “requested or agreed” to the EBT contributions, the FTT did not consider that the “redirection of earnings” principle could be applied here. While the director-shareholders involved appear to have had fairly limited understanding of the arrangements, it is hard not to speculate that if similar arguments were to be advanced by directors of owner-managed businesses to resist employment tax charges, the tribunal might well have taken a different view.
However, one aspect of the case that stands out is the length of time it has taken to resolve – clearly leading to difficulties in producing evidence for both sides. HMRC opened its enquiry in relation to events which took place as long ago as 1997, meaning the issue has taken some twenty years to reach a final decision – an extraordinarily long time for taxpayers to remain subject to the uncertainty of an outstanding tax dispute, even assuming there is no further appeal.
It was noted by the tribunal that the taxpayers could have taken steps, but did not, to press HMRC to resolve the enquiry much earlier. One lesson from this case is surely the importance of not leaving outstanding disputes to drift in this way.
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