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Interesting EBT case

https://www.bailii.org/ew/cases/EWHC/Ch/2019/2855.html

Didn't find your answer?

Para 18 shows even more HMRC incompetence re loan charge etc:

https://www.bailii.org/ew/cases/EWHC/Ch/2019/2855.html

Para 20 shows the importance of getting proper tax advice from a regulated firm (otherwise personal bankruptcy looms for monies received 10 years ago under profit extraction schemes that were assured as having only a remote risk of successful attack -  harsh).

PSL's Aikido dividend scheme is in para 21.

Para 61 is interesting re quasi-sham/mislabelling arguments re substance (reality) of a transaction.

I'm rather surprised the Respondents' counsel appears to have not distinguished Rangers, but seems to have accepted it applies (unless that concession was due to the APNs per para 27, but they were received later on 5 July 2013 and possibly that time lag could have made a difference here).

Interesting also that if they now go bankrupt with most of their wealth still in the EBT I think that's protected from their trustee in bankruptcy for the usual reasons.

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Psycho
By Wilson Philips
30th Oct 2019 13:15

"Para 18 shows even more HMRC incompetence re loan charge etc"

No it doesn't

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Replying to Wilson Philips:
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By Justin Bryant
30th Oct 2019 14:01

Eh? It clearly states an EBT DoTAS disclosure was made by PSL way back when (on 30 September 2004 in fact) with the full opportunity for HMRC to block it way back then therefore (rather than 2019 as done with the loan charge).

HMRC repeatedly claim this was always highly aggressive tax avoidance (that does not work - c.f. accountant's view in para 47), so why did they do nothing to block it for all those years? (That's either HMRC incompetence or lying in case you're not aware.)

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By carnmores
30th Oct 2019 13:27

Justin that is wholly unnecessary. I believe that HMRC had not formulated their stance at that time that does not mean it's incompetent. the simple facts usually are that the loan recipients were at best trying to avoid tax on their 'salary' and their professional advisers who promoted these schemes should have known better.

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Replying to carnmores:
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By Justin Bryant
30th Oct 2019 13:34

So, on the one hand HMRC can say it's always clearly been highly aggressive tax avoidance and on the other they can say they had to think about it for over 10 years before coming to that conclusion. That's called being a very dumb & incompetent liar in case you don't know. (That's exactly the reason there's an official enquiry into the loan charge.)

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By carnmores
30th Oct 2019 13:33

There you go again.... Is it reasonable that if the loans had been repaid within 10 years the loan charge would fail.

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Replying to carnmores:
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By Justin Bryant
30th Oct 2019 13:41

I'll make it simple for you. HMRC cannot have it both ways can they? If they said they had to think about for 10 years (for one reason or another) then that would clearly undermine their justification for the loan charge wouldn't it? That's why HMRC have been so disingenuous in saying their view was always that this never worked and was always aggressive tax avoidance. I think I'll end there.

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By carnmores
30th Oct 2019 14:02

Thank you for your condescension. I note you have changed from incompetence to disingenuous.

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Replying to carnmores:
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By Justin Bryant
30th Oct 2019 14:09

No, HMRC are being disingenuous to cover up their incompetence (there have been numerous posts here on all this). How on earth can it be anything other than incompetence or outright lies for HMRC not to block what they claim was always highly aggressive tax avoidance (that never worked in their view) with legislation (retrospective or otherwise) for over 10 years? The bloke doing the loan charge enquiry should read this case I think.

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Replying to Justin Bryant:
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By Adam12345
30th Oct 2019 14:27

Justin Bryant wrote:

I'll make it simple for you. HMRC cannot have it both ways can they? If they said they had to think about for 10 years (for one reason or another) then that would clearly undermine their justification for the loan charge wouldn't it? That's why HMRC have been so disingenuous in saying their view was always that this never worked and was always aggressive tax avoidance. I think I'll end there.

No HMRC can't have it both ways but neither can the taxpayer. They were either repayable loans or income. Not loans for tax purposes, and income for everything else (mortgage applications etc).

Ultimately, it is the scheme promoters that should be held to account.

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Replying to Adam12345:
By ireallyshouldknowthisbut
30th Oct 2019 15:41

They are Shrodingers loans.

Loans when made (so as to avoid income tax)

Somehow no longer loans when there is a new tax on 'em, despite never being repaid.

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Replying to Justin Bryant:
Psycho
By Wilson Philips
30th Oct 2019 13:46

Paragraph 18 doesn't explain why HMRC chose not to block the scheme. You consider it to be incompetence and are entitled to your opinion. I happen to have a different opinion.

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By Bob Loblaw
30th Oct 2019 15:01

Justin, I don't understand your proclivity to posting links, giving your opinion of the case and then not asking any questions of your fellow board members. You have a tendency to get rather worked up (IMO, I'm sure you're actually as cool as a cucumber and it's the internet casting a different tone on your words than intended) and act affronted in the replies when other people read the cases and have a different view to yours. I'm just interested to know what you hope to achieve with your posts? Are you trying to start a discourse on the cases in question, or are you using this site as a sounding board for your HMRC's gripes and what you perceive as incompetence from other tax advisers? If you're trying to start a civil discussion then hey ho far be it from me to police your tone, but I find myself very confused as to what the purpose of your posts are in some cases.

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By johnhemming
30th Oct 2019 15:03

Looking at Para 18 the promoters said:"It is a scheme that indefinitely defers payment of PAYE/NI. However, from the government's perspective, this type of planning is perhaps less offensive than schemes which avoid PAYE altogether. "

Hmmm.

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By johnhemming
30th Oct 2019 15:56

.

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By Tax Dragon
31st Oct 2019 14:05

.

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Replying to johnhemming:
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By Tax Dragon
31st Oct 2019 14:06

That's potentially a significant point. It seems harder to maintain the fiction that the charge is retrospective if all it does is say (I paraphrase) "You know that PAYE/NI you are deferring? We'd like you to pay it now please."

Justin hopes that the bloke dealing with the loan charge enquiry reads this case. It might be better if he doesn't.

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Replying to johnhemming:
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By Tax Dragon
31st Oct 2019 14:07

Hm. I don't know what you've done but it seems I can't reply to this comment.

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Replying to Tax Dragon:
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By Tax Dragon
31st Oct 2019 14:08

I mean the other one, that it's not letting me respond to.

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By Justin Bryant
31st Oct 2019 10:37

Reflecting on this case (and not the usual garbage comments above), I think it is likely to be successfully appealed, as the Judge had to find (under quasi-sham/mislabelling law) that there was a distribution (albeit unlawful), but companies do not pay tax (PAYE etc.) on distributions; only the human shareholders do. Thus, to find there was a company tax liability, he had to resort to Rangers, but that was a salary and not a distribution, but the money paid by the company cannot be both at the same time can it (see PA Holdings)?

So it's fundamentally flawed in my view and the usual marketing exercise in the link below may end up being erased before too long.

https://www.ashfords.co.uk/news-and-media/news/ashfords-cvr-global-and-j...

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By meadowsaw227
31st Oct 2019 10:50

Talking about "garbage" the easy answer is for all the miscreants to repay the "loans" end of.
If there was never any intention to repay the loans then they deserve all they get imho .
As I have said before, I have not had nor would ever have a client who would ever dream of subscribing to one of these schemes.

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Replying to Justin Bryant:
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By Bob Loblaw
31st Oct 2019 11:28

"Usual garbage comments" = people don't agree with me or immediately recognise the point in me posting what I post so I'm going to dismiss them entirely and not even attempt to engage in a civil discussion.

It's funny, you replied to me a week or so ago telling me to post under my real name so my clients could see what a "great" tax advisor I am. Despite the fact I'm not a tax advisor and have never suggested as such, the reason I wouldn't post under my real name is because I use this board primarily to learn in the hopes that it'll be beneficial in the long term. I'm far from the finished article and my knowledge on tax and accounting matters is a work in progress. Perhaps some of the things you post and your insights on them would be useful, but all you do is link dump, give a brief (sometimes incorrect) overview of the case then you flounce around the comments when people question you.

I would also never post under here using my real name because then I run the risk of becoming like you: a belligerent and easily annoyed tool. If I googled your name and it brought me here and I read your comments, I'd think you were an absolute git who I wouldn't feel comfortable engaging with on any level.

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Replying to Justin Bryant:
Psycho
By Wilson Philips
31st Oct 2019 13:25

Did you really bother to read the case, Justin? I confess to not having read every line but the central issue appears to be nothing to do with the company's tax liability (or indeed anyone else's tax liabilities) but instead the character of the payments - and thus the liability of the shareholders to repay (or not to repay) the sums to the liquidator.

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By Justin Bryant
01st Nov 2019 12:43

.

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By Justin Bryant
31st Oct 2019 14:58

On further reflection, although I think I am right that the judge got this wrong*, I would guess the company is out of time to appeal anything at the FTT etc., so any assessment/APN would stand for that reason alone (just like how HMRC can win any (otherwise wrong) assessment if there is no right to appeal). (The determination was issued in 2014 and I suspect no one would have appealed it by that stage as the company was in liquidation.)

*I fail see how something can be characterized as one thing for company law and another thing for tax law without some sort of case law or legislative justification. I think the judge should have found there was a constructive trust, like with illegal dividends (e.g. Vardy) and so it was not subject to tax by either the company or the human shareholders and they simply had to pay the cash back as constructive trustees without tax consequence (and as the owners they would get it back in the liquidation, albeit with CGT possibly).

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By whitevanman
31st Oct 2019 23:43

Sorry if I'm a little late in coming to this thread. There is a lot that Justin says and with which I don't agree.
For example the references to para 18 and HMRC incompetence. Yes, there was a DOTAS disclosure in 2004 but so what? HMRC does not seek to have legislation changed every time it gets such a disclosure (it probably gets hundreds every year). Rather they can then consider what current legislation might apply and will open enquiries to pursue that course. I don't know if you have ever tried to get an avoidance scheme litigated but believe me, it can take up to 10 years to get as far as the FTT. Only when it becomes clear that a scheme actually works would consideration be given to legislating and as I have emphasised elsewhere, that is a matter for government.
Apart from the above, all para 18 does is to set out what was said by the scheme promoters and I suppose "they would say that...".
As to wider issues, as has been pointed out by others, the case was concerned with the question of whether payments were ultra vires/illegal distributions. Tax treatment had nothing to do with it and HMRC was not a party to the case (it is noted in para 44 that they would be aware of the line being taken by liquidators but that is all).
In para 6 the judge refers to the Rangers decision but then appears to disregard that when in para 7 states that the payments were distributions to shareholders.
This may be at variance with the view taken by HMRC but that was not an issue for the court. The judge effectively agreed with the liquidator that there had been illegal distributions and consequently the shareholders must repay them to the liquidator.
We have no evidence to say whether the HMRC assessments etc have been appealed. The directors said they were in negotiation to settle the liabilities, but as I say, that was not a matter for consideration by this court.
There is an obvious contradiction here.
The court heard the evidence and based on that evidence, concluded the payments were distributions to the shareholders. If that is correct, the Rangers decision is irrelevant since it was concerned with payments to employees as such. HMRC may not accept that these were distributions to shareholders as such and may pursue for the tax and NIC they have already assessed. Support for that may come from the PA Holdings case (a dividend paid by way of remuneration is still remuneration) but who knows.
It is interesting though that, as things stand, the HMRC charges could fall, in which case the company was never insolvent and the shareholders will have to pay funds to the liquidator because they did not take account of possible tax, that isn't due, when making the payments (hence they were illegal). My head hurts!

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By Justin Bryant
01st Nov 2019 11:53

The other case in my comments below also describes EBTs as aggressive tax avoidance. Anyone who says HMRC are not incompetent by not blocking such schemes as soon as possibly in the early 2000s (when they were losing EBT cases) is being a bit dim (to put it mildly).

You are basically saying the judge's comments re Rangers are obiter (i.e. not relevant to the decision/finding). They are not. Read my above comment re that.

Read my other comment about the fact that even though the judge was wrong to say Rangers was relevant, the effect of HMRC's unappealable assessments is that they stand regardless.

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Replying to Justin Bryant:
Psycho
By Wilson Philips
01st Nov 2019 12:34

I don't think that any member of this forum regards HMRC as being anything other than incompetent and unfit for purpose. They just wish that you'd stop bleating on about it. Although one can perhaps understand why, given your personal interest.

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Replying to Wilson Philips:
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By Justin Bryant
01st Nov 2019 12:43

No, may main point is not that HMRC are incompetent (yes, we all know that I agree). It is that they are covering up their incompetence with blatant lies to justify the loan charge (that has actually killed people in case you don't know, so they have blood on their hands here).

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Replying to Justin Bryant:
Psycho
By Wilson Philips
01st Nov 2019 12:56

Whatever - doesn't change the fact that folks are tired of your incessant whining.

Even if HMRC are blatantly lying about the loan charge, and even if it has had some unfortunate consequences, that has nothing whatsoever to do with the judgement in this case (in which HMRC was not a party) which was simply about the characterisation, under company law, of payments finding their way to shareholders.

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By Tax Dragon
01st Nov 2019 12:57

TBH I wish you'd both shut up.

But not as much as I wish you'd both stop claiming to speak on everyone else's behalf.

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Replying to Tax Dragon:
Psycho
By Wilson Philips
01st Nov 2019 13:03

Fair enough. I'll rephrase - I'm tired of Justin's incessant whining, others can speak for themselves. But perhaps I would mind less (and say less) if he didn't happen to accuse anyone that happens to have a contrary opinion to his as an idiot, dimwit, muppet, troll etc.

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By Tax Dragon
01st Nov 2019 13:26

It is one of Aweb's great mysteries that the site's greatest critic of ad hominem arguments is also its most prolific user of such arguments.

Once upon a time I enjoyed the irony. (I love a good irony, me.) Now, I'm tired of it.

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By whitevanman
01st Nov 2019 20:05

I don't like to sink to the level that you seem to invariably occupy, simply hurling insults at people with whom you don't agree (or more importantly, it seems, who dont agree with you) and simply restating comments not supported by evidence and trying to pass off your opinions as fact, but I could make an exception for you.
Have you actually read the case? What makes you think you understand it ( given your comments I'm afraid I dont agree).
Why dont you read again the summary ( of the conclusions) particularly paras 6 and 7 and read also the actual decisions / conclusions in paras 96-100?
The judge considered that, based on the evidence, and notwithstanding the Rangers decision, the payments to the EBT 's and IIP were distributions to the shareholders. However, the judge also concluded, again on the evidence, that the directors failed to take the proper actions when deciding to make the payments (no accounts reviewed, no independent legal advice etc) and therefore they were unlawful. This had nothing whatsoever to do with tax as such. They simply had not done what they should have done.
The same applied to payments in 2013 ( though arguably they would also have fallen as made whilst insolvent) and the payments of expenses, also in 2013 were held to have been made at a time when the company was insolvent. As I say, read para 7.
The discussion of Rangers was relevant to considering whether and when the company may have been insolvent but there is no actual decision on that. In para 94 the judge points out that the company was on notice from 27 June 2011 of a substantial, potential tax liability. At the end of that paragraph the judge says "These material factors lead me to conclude on the balance of probabilities, that as at that date, .....the company could not...meet HMRC liabilities. It was insolvent..."
In para 95 the judge goes on to comment how making further payments (presumably to the IIP and the expenses etc) after that date, was in breach of the directors duties.
At no point does the judge comment on the correctness or otherwise of the HMRC debt. There is comment that there is a proof of debt. Nor does anyone say, anywhere in the case, that the assessments etc have not been appealed. Despite that you still assert the correctness of your own, inaccurate comments.
I can only conclude, as others seem to have done, that your posts are a waste of everyone else's time and not really worth consideration. I think i may choose to ignore them in future unless things improve.

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Replying to Justin Bryant:
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By whitevanman
01st Nov 2019 21:05

I don't like resorting to personal attacks, which appears to be your default position when someone does not agree with you. Nor do I see any value in you simply re-asserting that what you have said is the last word and repeating your own opinions as if they were fact. It is not what I or any reasonable person would expect on a forum for professionals to discuss technical issues.
That said, I have to ask whether you have actually read the case (others have asked the same question) and if you have, what makes you believe you understood it? You may have but your comments would lead one to the opposite conclusion.
You really need to read all of the case and suspend your own opinions whilst doing so.
In para 6 (summarising the decisions) the judge notes the Rangers case but goes on to say that (nonetheless) the payments to the EBT's were distributions to shareholders.
In para 7 the judge states that, although they were paid via the trusts, they were nonetheless distributions AND due to failure to comply with the statutory code, they were unlawful.
The judge goes on to say that payments made in 2013 of £70k fell to be similarly treated whilst payments of£30k also made in 2013, were made whilst the company was insolvent and therefore in breach of the directors duties.
If you read the rest of the case, you will see that the reason the distributions were considered unlawful had nothing to do with the tax charge or potential liability. It was that the directors did not take the actions they should have. For example, they did not have relevant accounts and did not take independent legal advice. It was these (numerous) failings that mattered.
If you look at the actual conclusions starting at para 106, this situation is confirmed.
The only part of the judgement to which the purported tax liability was relevant concerns the time at which the company would be considered insolvent.
There is no explicit finding but in para 94, the judge says that from 27 June 2011 it was known that HMRC had asserted a substantial liability and that from that date, the company was insolvent.
In para 95 there is comment about the subsequent arrangements (the IIP) also being in breach of the directors' duties. It did not matter in the context of the case because the judge had already concluded the payments were unlawful distributions. The only payments not so covered were the expenses payments of £30k which were thus held to be made at a time when the company was insolvent and therefore in breach of the directors' duties.
I can see nothing wrong with the reasoning here. The decision is based on the evidence and the specific facts.
As stated in my earlier post however, I do see a problem in that HMRC is not a party to the court proceedings and may well argue that the payments were nonetheless remuneration (my reference to PA Holdings).
Finally, as regards your comments re HMRC incompetence, I can state quite happily that I disagree these. I have no doubt that some individuals are / have been incompetent at times. It is utter nonsense and without foundation, to say that HMRC as a whole is always incompetent. It is also meaningless to make such an assertion (as you have done here) without any evidence and without considering the huge number of external factors (some of which I referred to). You may choose to disregard them but that does not make you correct. Nor is your point strengthened by simply re-stating it coupled with insults. You might do well to follow the advice of Blaire Palmer in her article in today's Aweb about dealing with conflict and (to paraphrase) "walk a mile in their shoes".

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By Justin Bryant
01st Nov 2019 11:27

I am fortified in my view that the above case is wrongly decided by another recent case in the Respondents' favour - Vining Sparks UK Limited. It is not yet on Bailii, but it is re a similar EBT profit extraction scheme (this time by good old Baxendale-Walker) concerning a (subsequently) bust company and which unlike the above case looks 100% correct to me .

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By unearned luck
03rd Nov 2019 22:11

Subject to HMRC possibly being out of time to issue Reg 80 determinations, how does correction of the judge's error help the company's creditors?

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By whitevanman
03rd Nov 2019 22:50

Not sure if there is a post that I cannot see but I cannot understand your question. Can you explain please?

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By Justin Bryant
05th Dec 2019 11:49

I note this law firm agrees with my above view in the link below as follows:

"The decision in Toone is particularly surprising, given that HMRC had assessed the payment into the EBT as a payment of earnings, subject to income tax (following the decision of the Supreme Court in RFC 2012 plc (in liquidation) (formerly Rangers Football Club Plc) v Advocate General for Scotland [2017] 1 WLR 2767). It is hard to see, therefore, how the same payment can be both a payment of income, and a distribution of capital to shareholders."

https://www.rpc.co.uk/-/media/rpc/files/perspectives/tax-take/tax-update...

The judge appears to have made a bit of a schoolboy error in failing to address this anomaly.

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By whitevanman
06th Dec 2019 20:29

I'm sure we have had the pleasure of this, and your comments , before.
The problem, as I see it, is that you have either not read or not understood the Toone case and the same may be said of the writer of the article you linked to.
The case did not involve HMRC. It was about insolvency and the judge decided the issues that were put before him.
The judge made no error.
It remains to be seen whether, in due course, an appeal on the tax aspects is made / heard. At that time no doubt, a judge will be asked to consider whether there is indeed an inconsistency. In that connection, I would remind you that, in P A Holdings, a dividend was held nonetheless to be remuneration for services and therefore chargeable under PAYE (for NIC as HMRC did not take the income tax point).

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By carnmores
06th Dec 2019 21:16

Sadly i have lost faith with the legal profession. Often wrong and usally hugely overpriced.

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