The worst FTT judgment this year

https://financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j12768/TC%2008855.pdf

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This is just total garbage. Look at para 44 for example.

https://financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j12768/TC...

The loans were totally irrelevant to the tax charge in Rangers, which was all about the acquiescence principle – which is inconsistent with a situation where EBT payments are made for the benefit of the business owner(s), as this case and the other BW cases mentioned.

Even if loans were relevent, the fact the borrowed cash was paid to the company and coudl then be repaid tax-free is totally irrelevent (i.e. if it was a tax-free EBT loan anyway in the first place, lending the borrowed cash to the company cannot make it less tax-free can it?).

Surely this will be appealed.

Replies (16)

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By ireallyshouldknowthisbut
17th Jul 2023 17:04

You ok hun?

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By Justin Bryant
17th Jul 2023 17:12

No. It should read:

This is just total garbage. Look at paras 44 & 56 for example.
https://financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j12768/TC...

The loans were totally irrelevant to the s62 tax charge in Rangers, which was all about the acquiescence principle – which is inconsistent with a situation where EBT payments are made for the benefit of the business owner(s), as in this case and the other PB-W cases mentioned.

Even if the loans were relevant, the fact the borrowed cash was onlent to the company and could then be repaid by the company tax-free is totally irrelevant (i.e. if it was a tax-free EBT loan anyway in the first place under the planning, lending the borrowed cash to the company cannot make it less tax-free can it - just as spending it on a Ferrari cannot make it less tax-free?).

Surely this will be appealed.

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By Ruddles
17th Jul 2023 19:02

I think I will reserve judgement on the decision until we have seen an appeal.

It does look as though the judge was simply trying to find an excuse to discredit the use of an EBT. Whilst I have no doubt that many will think the decision itself was correct the reasoning seems to be woefully full of holes, if not outright flawed.

I haven’t read every line but there doesn’t appear to have been any comment on the CT treatment of the contribution. Although the case was about the income tax treatment the two usually go hand in hand and I would be interested to know how the company had treated it (apologies if it is in fact mentioned).

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By taxdigital
17th Jul 2023 19:14

Not relevant to this case, but I dealt with an interesting case a couple of years ago where the individual in question was being chased by:

a) HMRC for all the taxes due, going back a few years, and
b) by a firm of solicitors in Jersey/Guernsey for repayment of the loan with all the accrued interest! The trust had sold the loan portfolio over to the solicitor firm for x sum!

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By richard thomas
17th Jul 2023 21:33

Much as I like Nigel and agree with many of his decisions, esp. on procedural points, I did find the reasoning hard to fathom. There is certainly case law supporting the proposition that a loan on uncommercial terms and unlikely to be repaid is income (eg Sansom) but this is not that case.

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Replying to richard thomas:
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By Catherine Newman
17th Jul 2023 22:17

Welcome back Richard. I hope it is for good as you have great insight into tax cases.

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Replying to Catherine Newman:
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By zebaa
17th Jul 2023 23:31

+1 to Mrs Newman's thoughts.

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Replying to richard thomas:
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By Justin Bryant
18th Jul 2023 09:46

Yes Richard, it’s really great to have you back with your sage comments (in case you don’t know, yours and Jason's views are the only ones that I respect on this forum – even though we occasionally disagree).

The politest thing you can say about this judgment is that it’s very confused.

Para 22 is wrong. There must be acquiescence for Rangers to apply; acquiescence meaning that it is essentially the agreement between employee and employer to
redirect a payment (to EBT etc.) that would otherwise be a direct salary/bonus payment ("Don't pay me, pay my mum" is how JGKC put it) that is key (and the employee is specifically thereby at risk of not getting any benefit/reward therefrom under the Rangers ratio), and any actual resulting benefit/reward is irrelevant to that principle (at most, it just helps show that there was acquiescence in the 1st place as a matter of evidence). (In para 23, the judge is using finding “realistic facts” and “purposive construction” of legislation as an excuse to ignore the Rangers ratio re acquiescence.)

Re your loan/salary point, there was no suggestion in Rangers that a loan payment was a taxable benefit. Indeed, under Rangers, the loan is basically irrelevant as explained above, since there would have been tax due under Rangers regardless of any loan due to mere acquiescence alone. There is no case law where genuine loans per se can be treated as salary (the only way for that to happen is under P7A – the exception that proves the rule).

This was clearly not salary dressed up as a loan (in PA Holdings, salary was dressed up as a dividend) and HMRC accepted (as an agreed fact) it was a genuine loan.

The judge was clearly not interested in considering the corollary of his decision re double taxation and more or less brushed that aside as an irrelevant consideration (contrast how potential double tax has been dealt with as being key to the court’s reasoning at SC level here https://www.rpc.co.uk/perspectives/tax-take/hmrc-lose-furbs-appeal/ ).

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VAT
By Jason Croke
18th Jul 2023 09:40

It does seem that the appalling standards (making up laws that don't exist, not following correct process, etc) that we experience from HMRC Officers across the taxes is now moving across to the legal profession supporting HMRC in these tribunals.

There should be no way HMRC's solicitors should be accepting at face value the decisions made by HMRC Officers, it feels like HMRC's solicitors are bending the law to fit whatever narrative the Officers have gone with, doubling down when they should be backing down.

That the Tribunal chairs/judges are being swayed by this is a further worry.

Does anything actually work in modern Great Britain?

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Replying to Jason Croke:
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By Justin Bryant
18th Jul 2023 09:52

Well said.

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By Montrose
18th Jul 2023 16:47

But the historic Customs and Excise mismanagement of litigation continues within HMRC. Have a look at http://www.bailii.org/uk/cases/UKFTT/TC/2023/TC08853.html .

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By Montrose
18th Jul 2023 16:47

But the historic Customs and Excise mismanagement of litigation continues within HMRC. Have a look at http://www.bailii.org/uk/cases/UKFTT/TC/2023/TC08853.html .

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Replying to Montrose:
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By Justin Bryant
18th Jul 2023 17:16

Yes, I saw that (but with only c£7m VAT at stake it was hardly worth mentioning) and it's no wonder HMRC are normally so reliant on FTT judges to do their job for them.

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By Justin Bryant
13th Sep 2023 10:12

This case gets another mention in Taxation Magazine today in response to my comment re BIKs on EBT interest-free loans.

https://www.taxation.co.uk/articles/feedback-14-september-2023

This is of course another reason why the judge is wrong, as if he was right employees could suddenly say to HMRC that their tax-free employer loan is actually s62 earnings (regardless of the accounting treatment) and HMRC are too late to assess that and furthermore please can you refund my BIK tax (for that past 4 years at least)!

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By Justin Bryant
19th Sep 2023 12:21

I note BKL agree the FTT’s analysis is "confusing": https://www.bkl.co.uk/insights/currell-ebt-2023/

The judge’s analysis may have been valid, but only on a wholly different scheme where there was no acquiescence re redirected earnings but an assignment to an EFRBS (or EBT) of an employer loan likely never intended to be repaid per para 45 here (i.e. that’s the exception that proves the rule): https://www.bailii.org/uk/cases/UKFTT/TC/2023/TC08930.pdf

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