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HMRC loses employee bonus tax appeal

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26th Feb 2015
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HMRC has lost an appeal against a tax planning scheme used by companies who paid bonuses as shares via subsidiaries.

Judges in the upper tribunal Tower Radio, Total Property Support Services Limited v HMRC decided that Tower Radio did not owe income tax or national insurance contributions because it was not a money transaction.

HMRC argued that the tax planning, designed by Barnes Roffe accountants, did not achieve its intended purpose. The companies lost a case in the in the first-tier tribunal in 2013.

It was deemed a “lead case” in the upper tribunal because other similar cases that were awaiting its outcome.

The upper-tribunal case focused on two matters: whether the “Ramsay” tax principle (if a transaction has artificial steps and has no commercial purpose other than to avoid tax the transaction should be taxed as a whole) was applicable; and whether employees had acquired “money” rather than “shares in any body corporate.”

Mr justice Newey and judge Colin Bishopp ruled that the employees were given shares in the company not money and so income tax and national insurance contributions were not owed. “However unattractive the result may be, it seems to us that the appeals before us must be allowed,” they said.

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