UPDATE: THE COURT OF APPEAL HAS DISMISSED AN HMRC APPEAL AGAINST THIS DECISION – SEE THE CLARITAX NEWS STORY.
The Upper Tribunal has reversed the decision of the FTT (see our earlier summary here) and has held that certain amounts were not taxable as earnings – MR Currell Ltd v HMRC [2024] UKUT 404 (TCC).
INCOME TAX AND NICs – PAYE – payment to an EBT, loan of same amount to a director – FTT found purpose of payment was to enable the loan to be made and the purpose of the loan was to reward the director; it was inevitable at the time of payment to the EBT that the loan would be made; there was a genuine repayment obligation – held – FTT made an error of law in concluding that in vast majority of cases a loan confers a taxable benefit and that the loan made to the director conferred such a benefit – decision of FTT set aside – re-made – neither payment to the EBT nor the principal of the loan to the director was earnings – appeal allowed.
The FTT had looked at the purpose of the EBT and had concluded that “it was more likely than not that the loan was paid to [Mr Currell] as a reward for the services which he had provided to the company”.
The Upper Tribunal found that the FTT had erred in law, especially in its conclusion that in the “vast majority” of cases a loan would confer a benefit on the borrower.
The UT concluded that some of HMRC’s key submissions were “not supported by the legislative regime or the authorities (including for this purpose not only decisions such as Apollo Fuels but also the decision in Rangers UT)”.
In this case, the UT noted that the money lent to Mr Currell “was not placed unreservedly at his disposal” as he still had a liability to the trustee.
The UT therefore concluded that:
“The making of the Loan to MC was not a payment of earnings to him. The FTT made an error of law in concluding at [37] that in the vast majority of cases in practices a loan will confer a ‘benefit’ on the borrower, that this Loan conferred a benefit on MC and that its payment to MC was potentially earnings (depending on the substantial reason for its payment).”
Reading the FTT decision as a whole, the UT came to the conclusion that “the error of law might have made a difference to the decision reached by the FTT”.
The earlier FTT decision was therefore set aside. Furthermore, it was re-made by the UT to allow the appellant’s appeal against the determinations.
https://caselaw.nationalarchives.gov.uk/ukut/tcc/2024/404?tribunal=ukut%2Ftcc&tribunal=ukftt%2Ftc
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