CIA Insurance Services Limited (“CIAISL”) made contributions to the CIA Insurance Services Limited Remuneration Trust (the “Trust”). Those contributions were used to make loans to three individuals, Lee Callaby (formerly Lee Martin), Eliot Blundell and Martin Sheppard who were the sole shareholders of CIAISL’s immediate parent company and were also employees of CIAISL (and, in the case of Ms Callaby and Mr Blundell, directors of CIAISL). Those three individuals are referred to together as the “Shareholders”. This arrangement of making contributions to a remuneration trust and then those funds being used to make loans is one which had been designed by Paul Baxendale-Walker and entities connected with him and his firm, Baxendale Walker LLP (together referred to as “Baxendale Walker”).

HMRC have issued closure notices and discovery assessments to CIAISL, denying the corporation tax deductions claimed for the contributions to the Trust and fees paid by the company for the accounting periods ended 31 December 2011 to 31 December 2014. HMRC have also issued determinations under regulation 80 Income Tax (Pay As You Earn) Regulations 2003 (“Regulation 80 Determinations”/ “the PAYE Regulations”) and decisions under s8 Social Security (Transfer of Functions, etc.) Act 1999 (the “Section 8 Decisions”/ “SS(ToF)A 1999”) for the tax years 2011-12 to 2013-14. CIAISL have appealed against the amendments made by HMRC to their corporation tax returns, the discovery assessments and the determinations and decisions made by HMRC.

CIAISL established the trust and made the first contributions in the accounting period ended 31 December 2010 (in December 2010). Only the deductions claimed in the accounting periods ended 31 December 2011 to 31 December 2014 are currently before this Tribunal. The contributions into the Trust from its establishment to 31 December 2014 total £9,655,000. This sum includes the contributions made in December 2010 – whilst the deductibility of those contributions is not covered by this appeal, they funded loans which are covered by the Regulation 80 Determinations and Section 8 Decisions.

The issues are described more fully below, but CIAISL’s position is that the contributions were paid wholly and exclusively for the purposes of its trade and that, accordingly, they and the fees paid to Baxendale Walker and related entities are deductible. They submit that the loans advanced to Shareholders are not taxable.

One issue relevant to the corporation tax treatment has already been stayed, namely whether contributions to the Trust should have been recognised as an expense in CIAISL’s profit and loss account under UK GAAP. HMRC requested that I reach a decision on liability in principle, following which the parties can seek to agree the correct calculations, and CIAISL have not disagreed with this approach. I agree that this is the most efficient approach (and the parties are at liberty to apply if they cannot reach an agreement on quantum).

For the reasons set out below, CIAISL’s appeals are dismissed (save as regards the income tax and NICs treatment of one purported contribution). I have concluded that the contributions to the Trust and the fees were not incurred wholly and exclusively for the purposes of CIAISL’s trade and that the loans made to the Shareholders are employment income of the Shareholders.

I dealt with various matters by way of case management, and gave my decision on those matters during the hearing. I explained my reasons for those decisions, which I had made having regard to the overriding objective in rule 2 of The Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (the “Tribunal Rules”).

Three matters had been the subject of applications made to the Tribunal before the hearing, and I had received written representations from both parties in each instance. I did hear some oral submissions during the morning of day one of the hearing, but against the background that I had the benefit of full applications which had been made in advance. The applications made and decisions reached were as follows:

In addition, in his oral submissions on day three of the hearing, Mr Venables raised arguments as to the validity of contributions made to the Trust, and whether MEL had the right to make loans of money contributed to the Trust to the Shareholders.

These submissions, which I refer to generally as the Trust Arguments, took various forms and were posed in differing ways throughout the hearing (and when setting out his detailed submissions, after Ms Callaby’s evidence had completed, Mr Venables expanded this to include a challenge as to the capacity in which moneys were received by Baxendale Walker). One iteration only operated as an alternative submission (as it was effectively a concession of the appeal against the assessments, as there can be no deduction for expenses not incurred), but all had in common that they were raised to defeat HMRC’s arguments on the Regulation 80 Determinations and the Section 8 Decisions. CIAISL was thus seeking to introduce a new ground of appeal during the course of the hearing itself. I asked for representations as to whether this new ground should be admitted. Mr Venables explained that the Trust Arguments had arisen at a late stage as they were preparing for the hearing.

Mr Ghosh objected to the Trust Arguments being admitted. HMRC’s position was that they were a complete ambush, and introduced the risk of the hearing (which had been listed for ten days) being part-heard, as admission would involve additional time for preparation and cross-examination.

I took time to consider the matter overnight. At the beginning of day four I informed the parties that I would give permission for CIAISL to run the Trust Arguments. I agreed with Mr Ghosh that the Trust Arguments were being raised extraordinarily late – not only had they not been set out in any of the written submissions, but also they had not even been identified on day one of the hearing. The timing weighed heavily against allowing the Trust Arguments to be made. However, my reasons for allowing the Trust Arguments were based on the interests of justice suggesting that new arguments should be heard, particularly where they were based on law and should not require significant additional factual evidence; moreover, and particularly significant in the context of this appeal, HMRC had reserved their position on sham throughout (having done so in their various statements of case) and had been directed (by me prior to the commencement of the hearing) that they would need to set out their position on sham following conclusion of the witness evidence. I considered that if HMRC did decide to pursue an argument that some or all of the documents were a sham (a matter which would not be known until around day six), then all or part of the Trust Arguments might be expected to be raised as a response to such a position and it would be unfair to CIAISL to refuse to allow them at that stage to make such arguments by way of a response to HMRC. I considered it would be inefficient and make preparation even more difficult if I were to defer making a decision on the Trust Arguments until HMRC’s position on sham was known, and I did note that CIAISL had alluded in their skeleton argument to an argument being made that no relevant step was taken by any relevant third person (albeit with no further information by way of explanation). Whilst the position was finely balanced, I thus decided to give permission.

HMRC instructed additional counsel, Mr Herbert and Ms Jordan, to address the Trust Arguments, and I was most grateful for their assistance, particularly given the absence of notice.

I did not have the benefit of an agreed chronology or a statement of agreed facts. This section sets out my findings of fact in relation to CIAISL and certain other parties to the documentation, the provisions of the transaction documents (including the resolutions made by the directors of CIAISL), the payment flows involved and the use of money by the Shareholders. They are findings that those documents on those terms were entered into and that the payment flows occurred; they do not address at this stage the submissions of Mr Venables in relation to the validity of the acts involved (ie the Trust Arguments), including the submissions there was no “payment” for relevant purposes. I have made additional findings of fact throughout the Discussion.

CIAISL was incorporated on 3 December 2001 in England and Wales. Its principal activity is that of insurance and re-insurance brokers.

Between 2001 and 2006 CIAISL was one of the main providers in the motorcycle insurance business; however, between 2005 and 2010 it experienced a significant downturn in this market.

CIAISL looked at other forms of insurance, and identified two other niche areas – caravan insurance and Type A insurance. The caravan insurance line was not successful. They began transacting Type A insurance in October 2007 and saw immediate and significant growth in this area.

In January 2006, LEM Limited (“LEM”) had acquired all of the shares in CIAISL. LEM is a holding company, whose sole activity is the holding of shares in CIAISL. The shares in LEM (which are all of the same class) are owned by Mr Sheppard, Ms Callaby and Mr Blundell (as to 3,334, 3,333 and 3,333 shares each respectively).

From 1 January 2010 to 31 December 2014, Mr Blundell and Ms Callaby were directors of CIAISL. They also had employment contracts with CIAISL. Mr Sheppard was an employee of CIAISL throughout this period.

MEL Management Services Ltd (“MEL”) was incorporated on 28 October 2010 in England and Wales. It has issued three ordinary shares, one of which is held by each of the Shareholders. The directors of MEL are Ms Callaby and Mr Blundell. MEL did not have any other activities other than those described herein.

On 6 December 2010, by a written resolution, the directors of CIAISL set out the following:

The Providers List named six businesses, including SSP Ltd and Moneysupermarket.

The Questionnaire includes:

On 9 December 2010 the Trust was established by trust deed (the “Original Trust Deed”) entered into between CIAISL (as “Founder”) and Bay Trust International Limited (“BTIL”) as Trustees. The Original Trust Deed is governed by English Law.

Key definitions in the Original Trust Deed are as follows:

The Shareholders were named the Protectors of the Trust.

By clause 2, the Trust is declared as a discretionary trust in favour of the Beneficiaries in such shares and in such manner as the Trustee shall in its absolute discretion think fit.

Clause 3.8 enables the Trustee to exercise its administrative and investment powers to make loans to an Excluded Person, provided that the same does not constitute a gift of the principal amount of the loan, nor the use of money, nor form part of any trust, scheme or arrangement which is an “employee benefits scheme” for the purposes of Schedule 24 Finance Act 2003 (“FA 2003”), or which participation would have the consequence that the provisions of Schedule 24 FA 2003 apply so as to restrict the deductibility for corporation tax purposes of Founder contributions to the Trust.

Clause 9 provides that the Protectors may with the consent of the Trustees amend the Original Trust Deed in any respect, but this power cannot be exercised “in any manner which does or would give rise to any fiscal liability upon any person”. (This power was exercised in 2013, as described below.)

The Original Trust Deed then contains limitations on the Trustee’s powers:

A deed of amendment was executed between the three Shareholders (in their capacity as Protectors) and BTIL on 13 March 2013 (the “Deed of Amendment”). That deed purports to amend the Original Trust Deed with retrospective effect, but Mr Venables accepted that it can only apply prospectively.

Clause 2 of the Deed of Amendment provides that the form of the deed set out at Schedule 2 thereto is to replace the Original Trust Deed “as on and from the date” of the original deed. I refer to this as the “Amended Trust Deed”, and the Original Trust Deed and the Amended Trust Deed are together the “Trust Deeds”.

The Amended Trust Deed includes the following definitions:

The declaration of trust in clause 2 is expressly subject to clauses 10, 11, 12 and 13 of the Amended Trust Deed:

MSB Holdings Ltd (“MSB”) is referred to in the context of two agreements signed in December 2010 (which are together the “MSB Documents”).

There is a document on BTIL letterhead headed “Appointment of Delegated Manager and Custodian”. That document was signed by BTIL on 10 December 2010 and states that BTIL delegates to MSB, described as a company registered under the laws of Belize, the execution or exercise of all or any of the Trust’s powers and discretions conferred upon it as Trustee as regards the management and custody of the Trust Fund. The document also states that MSB accepts that delegated authority.

This document was not executed by MSB (by which I refer not only to the absence of a signature on its behalf, but there is also no signature block for that company to indicate that it had been intended that it execute this document).

A fiduciary services agreement was executed that same day between MSB (as Principal) and MEL (as Fiduciary) (the “Fiduciary Services Agreement”). The Fiduciary Services Agreement defines the Property as being “all and any property real and personal granted by the Principal to the Fiduciary”. Clause 2, headed “Declaration of Bare Trust and Fiduciaryship” provides at 2.1:

CIAISL resolved to make contributions of the following amounts to the Trust: £250,000 on 6 December 2010, £350,000 on 16 December 2010, £510,000 on 13 May 2011, £750,000 on 29 September 2011, £200,000 on 29 November 2011, £200,000 on 8 December 2011, £255,000 on 17 May 2012, £255,000 on 24 May 2012, £255,000 on 30 May 2012, £375,000 on 24 September 2012, £375,000 on 2 October 2012, £450,000 on 5 December 2012, £120,000 on 14 March 2013, £400,000 on 19 August 2013, £400,000 on 27 August 2013, £500,000 on 14 November 2013, £500,000 on 20 November 2013, £240,000 on 9 December 2013, £375,000 on 9 May 2014, £375,000 on 15 May 2014, £450,000 on 4 August 2014, £450,000 on 18 August 2014, £870,000 on 9 October 2014 and £750,000 on 2 December 2014.

HMRC’s skeleton argument included a schedule setting out the details of the resolutions of CIAISL to make contributions to the Trust and subsequent steps that occurred in relation thereto. That schedule, as produced, included references to relevant pages of the bundles which were the source of the information included therein. In the light of all of the evidence before me, I am satisfied that such schedule is an accurate record of the payments that were made by CIAISL in connection with the Trust arrangement from 6 December 2010 to 31 December 2014. The substance of that document is set out as the Schedule hereto and I find as a fact that the information recorded therein is accurate, ie that the resolutions were made by CIAISL, payments were made, letters were sent and loan agreements were entered into as set out therein.

It is apparent from this, as was acknowledged by the Assumed Chronology prepared on behalf of CIAISL and handed up during the hearing, that the following steps generally occurred in relation to each contribution:

There were some differences in the pattern – eg:

The steps are recorded in the Schedule. However, I go through some of the contributions below in order to address the documents, and some of the differences in the steps.

The first contribution (of £250,000) was resolved to be made by CIAISL on 6 December 2010, when it resolved to make contributions to what it described as the scheme. The contribution was to “be paid to the said Trustees of the Scheme to be held on the trusts of the Scheme”. The following steps then occurred.

This was the first contribution, but had the following differences from the pattern which emerged:

On 16 December 2010 CIAISL resolved to make a further contribution to the Trust, and resolved that £350,000 “be paid to the said Trustees of the Scheme to be held on the trusts of the Scheme” and to provide the Trustees with a copy of the resolution and the Providers List.

However, I am not satisfied that any contribution was made to the Trust of this amount:

The money started and ended with CIAISL, and these transfers all occurred on the same day, in accordance with CIAISL’s instructions to Lloyds. This movement of £350,000 was funded by a loan advanced from JHL Management Limited (acting on behalf of Countrywide Legal Services Limited Remuneration Trust) (“JHL”) which CIAISL entered into on 13 December 2010 (the “JHL Loan”). The JHL Loan was for the amount of £350,000, with a repayment date of 16 December 2010. I am satisfied that these funds were advanced to and repaid by CIAISL in accordance with the terms of the JHL Loan.

I refer to this as the “Purported Contribution”.

This was the third contribution that was resolved to be made, and the first where at the end of the series of transactions the funds had been lent by MEL to the Shareholders (in that there was both a Finance Agreement and the funds were transferred) in circumstances where the Shareholders did not then lend the money back to CIAISL. As can be seen from the Schedule, it illustrates the general pattern but is not without its own quirks:

CIAISL resolved to make contributions of £200,000 to the Trust on each of 29 November and 8 December 2011. These amounts were paid to Baxendale Walker and separate Request Letters were sent by the Shareholders in respect of each, asking that the funds be transferred to MEL. Those transfers were made (on 2 and 13 December 2011). It was only on 13 December 2011 that MEL entered into Finance Agreements with each of the Shareholders (for £133,333 each) and then transferred the funds to the Shareholders.

As noted above, Request Letters were sent by the Shareholders to BTIL on 29 November 2011 and 8 December 2011. The Request Letter of 29 November 2011 is expressed slightly differently from those sent previously. It is still framed as a request, and reaffirms the Shareholders’ understanding that BTIL is not bound to follow their wishes, but is headed “Re. CIA Insurance Services Ltd Remuneration Trust (“the Scheme”)” and starts “As the founder of the Trust, I am writing to request…”. It then requests the transfer of £200,000 of trust assets “to be managed by the FIDCO, MEL Management Services Limited upon commercial terms to be agreed, for the purposes of general Investment”. There is no reference in this form of letter to the money being held in the Baxendale Walker client account.

Subsequent Request Letters are in this same format.

The resolution of 17 May 2012 is in the same form as all of the others. However, the Providers List attached to each resolution had previously identified only five or six providers. This one lists more than 60.

On 17 May 2012 CIAISL resolved to make the contribution, a Request Letter was sent and MEL agreed to lend the full amount to Mr Sheppard. This Finance Agreement was entered into by MEL before any money had been transferred by CIAISL to Baxendale Walker.

For prior contributions the evidence before me included bank statements of both CIAISL and MEL (albeit that there had been one month missing), and those statements identified the relevant transferor and transferee, such that payments could be tracked from CIAISL out to Baxendale Walker and then into MEL from Baxendale Walker and out to a named Shareholder. However, there were no bank statements available for MEL from May 2014 onwards. I find that the amounts transferred by CIAISL to Baxendale Walker were transferred to MEL (relying on this being the pattern of earlier transactions, this was in accordance with available Request Letters and Ms Callaby not having given evidence to the contrary) and that MEL lent this money to the Shareholders in accordance with the Finance Agreements which it entered into (which were before me).

However, there was one further change which occurred from May 2014 (albeit not on every occasion that a contribution was resolved to be made), which was that BTIL sometimes wrote to the Shareholders in response to the Request Letters (these being “Acknowledgement Letters”).

On 9 May 2014 CIAISL resolved to contribute £375,000. That amount was transferred to Baxendale Walker that same day. On 12 May 2014 a Request Letter was sent by the Shareholders to BTIL. The Acknowledgement Letter was sent by BTIL that same day. The letter is addressed to the Shareholders and states “Further to your request with contents of which we have noted and given consideration, we hereby authorize approval for the funds of £375,000.00 held in the Baxendale Walker client account to be transferred to the bank account of MEL Limited for management.”

A similar Acknowledgement Letter was sent by BTIL on 16 May 2014 in response to a Request Letter of 16 May 2014. There was no evidence that BTIL responded to all Request Letters after this time – they didn’t in August 2014, but did in October 2014.

CIAISL resolved to contribute £450,000 to the Trust on 4 August 2014. CIAISL transferred this amount in two tranches that day, the payee being “Buckingham” rather than Baxendale Walker. Buckingham was elsewhere referred to as Buckingham Wealth and I was invited to infer that this was related to Baxendale Walker.

From this point onwards, the documentary evidence indicates that CIAISL made payments to Buckingham Wealth rather than Baxendale Walker.

With the exception of the Purported Contribution, all of the contributions were made by CIAISL transferring the funds to a Baxendale Walker or Buckingham Wealth client account, and the entirety of those funds (less, in the case of the first contribution of £250,000 made in December 2010, some fees) were transferred directly from that account to a bank account of MEL at Lloyds.

All of the amounts received by MEL were then lent to the Shareholders (save that there is £500 which is not accounted for, and which I do not address further). The loans made by MEL to the Shareholders under the Finance Agreements were for the period of ten years plus one day. As at the date of the hearing, none of these loans have been repaid or interest paid thereon even though some are now due for repayment.

The Shareholders have provided lists of assets that were funded by these loans, and these include jewellery, artwork (in the case of Ms Callaby), cars, property and cash/shares. I find that they used the money as they wished, acquiring personal assets:

The Shareholders have made loans to CIAISL. As at December 2014, Mr Sheppard, Ms Callaby and Mr Blundell were owed £235,362, £240,650 and £244,064 by CIAISL respectively. I infer that these amounts were funded from the loans advanced to them by MEL.

The Shareholders acted consistently with this being their own money, rather than assets belonging to or being subject to the Trust. This is reflected both in the choice of assets acquired and, in the case of the properties, the SDLT returns which stated that the purchaser(s) was/were not acting as a trustee.

On 25 August 2011 each Shareholder entered into an agreement with MEL to lend MEL £1,200 per calendar year, such sum bearing interest at 10% per year. Such loans were to be repayable on demand. Each loan agreement is headed “Trading Loan Agreement”. The Shareholders did make such loans to MEL.

The engagement letter from Baxendale Walker to CIAISL dated 25 October 2010 sets out the fees payable by CIAISL as £12,500 plus VAT to Baxendale Walker plus “Minerva fees” of 10% of each contribution made to the Trust.

CIAISL has paid those fees on every contribution it has made. These have usually been paid directly by CIAISL, although the fee payable in respect of the first contribution made to the Trust was paid (at the request of the Shareholders) out of the amount contributed.

The following matters were in issue between the parties:

It is for HMRC to establish, on the balance of probabilities, that the Discovery Assessments were valid. CIAISL has the burden of proof in respect of all of the remaining issues, also on the balance of probabilities.

CIAISL did not challenge the validity of the Regulation 80 Determinations or the Section 8 Decisions (and this was confirmed by Mr Venables at the hearing).

Mr Ghosh confirmed at the hearing, after Ms Callaby had finished giving her oral evidence, that HMRC would not be pursuing an argument that any or all of the documents were a sham (having reserved their opinion on this matter in their statement of case).

I was provided with extensive electronic bundles, as well as skeleton arguments from both parties and an Assumed Chronology prepared on behalf of CIAISL. Both parties handed up additional papers (including various cases and explanatory notes to Finance Bills) during the hearing, which I admitted.

The bundles included witness statements from Ms Callaby of CIAISL (dated 5 August 2019 and 15 March 2021) and Damian Midwinter of HMRC, both of whom attended the hearing and were cross-examined on their evidence.

The relevant legislation for the periods in issue is set out below.

The requirement that expenses are wholly and exclusively for the purposes of the trade is set out in s54(1) CTA 2009, which provides:

The limitation on deductions for “employee benefit contributions” is set out in s1290 to s1296 CTA 2009. Section 1290 relevantly provides:

Section 1291 CTA 2009 was amended during the periods in issue. It was enacted as follows:

However, with effect in relation to acts or omissions occurring on or after 6 April 2011, s1291 was amended. The language “or persons linked with present or former employees of the employer” was added at the end of s1291(2), and s1291(3) and (4) were introduced as below:

Section 9 ITEPA 2003 relevantly provides:

Section 62 ITEPA 2003 provides:

Section 554A ITEPA 2003 relevantly provides:

Section 554B sets out the circumstances in which a person takes a relevant step and relevantly provides:

Section 554C sets out other circumstances in which a person takes a relevant step and relevantly provides:

The charge under Part 7A then arises by virtue of s554Z2, which provides:

Section 554Z3 deals with the determination of value:

The interpretation clause, s554Z, includes:

Section 6 Social Security Contributions and Benefits Act 1992 (“SSCBA 1992”) imposes a liability for Class 1 NICs in respect of an employed earner’s employment. Section 8 provides for the calculation of that liability. Section 3(1) gives the definition of earnings and earner as follows:

Section 25 provides that Schedule 3 to SSCBA 1992 specifies payments which are to be disregarded in the calculation of earnings from an employed earner's employment for the purpose of earnings-related contributions. Part X of Schedule 3 lists payments that are to be disregarded, and includes at paragraph 5:

Regulation 22B Social Security (Contributions) Regulations 2001 (“SSC Regulations 2001”), which applies with effect from 6 December 2011, provides that amounts treated as employment income by Part 7A ITEPA 2003 are also treated as remuneration derived from an employed earner’s employment for the purposes of s3 SSCBA 1992.

Enquiries were opened into CIAISL’s company tax returns for the accounting periods ended 31 December 2013 and 31 December 2014 under paragraph 24 of Schedule 18 Finance Act 1998 (“FA 1998”) which relevantly provides:

Discovery assessments were issued in respect of the accounting periods ended 31 December 2011 and 31 December 2012 under paragraph 41 of Schedule 18 FA 1998 which relevantly provides:

Paragraph 42 provides that HMRC may only issue a discovery assessment for an accounting period for which the company has delivered a company tax return if the circumstances in paragraphs 43 or 44 are met. They provide:

The time limits for issuing a discovery assessment are set out in paragraph 46 of Schedule 18 FA 1998. There is no dispute that the discovery assessments (if valid) were issued in time. Paragraph 47(1) sets out the assessment procedure and provides:

The Section 8 Decisions were made pursuant to s8 Social Security (Transfer of Functions, etc.) Act 1999. Rules relating to the making of decisions are set out in the Social Security Contributions (Decisions and Appeals) Regulations 1999, regulation 4(1) of which provides:

The Regulation 80 Determinations were made under regulation 80 of the PAYE Regulations 2003, which relevantly provides:

Section 113(1B) Taxes Management Act 1970 (“TMA 1970”) deals with delegation of some tasks to other officers:

The issues before me and the burden of proof in relation thereto are set out above. Those issues require me to make additional findings of fact and, in particular, to assess the evidence given by Ms Callaby. However, it is helpful first to set out a very brief overview of the position taken by Mr Venables in his submissions on behalf of CIAISL.

There were several themes to Mr Venables’ submissions – the documentation was poorly drafted, and it was not easy to identify why some of the transactions had been entered into; the MSB Documents appear to be ineffective (as the Appointment of Delegated Manager was not executed by MSB so there was no evidence of how MSB could have accepted this appointment, and whilst MSB had executed the Fiduciary Services Agreement there was no evidence of any property being granted by MSB to MEL thereunder); that what mattered was evidence as to the subjective intentions of CIAISL and not the views of Baxendale Walker or other users of these arrangements; the significance of the three Shareholders being both employees of CIAISL and indirect shareholders of that company (as they were the sole shareholders of its holding company LEM); and that if the documentation did not have effect as set out on its face then I would need to consider the Trust Arguments (noting that whilst the CIAISL resolutions referred to the contributions being paid to the Trustee, in fact no payment was ever made directly to BTIL).

There was no dispute between the parties as to what the resolutions of CIAISL said, the payment flows, or the use of the money by the Shareholders. The areas of disagreement included the intentions of the parties (CIAISL in particular), control over the Baxendale Walker client account, and whether the loans were advanced from MEL to the Shareholders in their capacity as indirect shareholders of CIAISL or as employees. There was some documentary evidence to assist on these matters, but my findings would need to be based on my conclusions as to the evidence of Ms Callaby and by making inferences (from both the documentation and the witness evidence).

Ms Callaby was a director and employee of CIAISL throughout the periods under appeal. There was no evidence from either Mr Blundell (her fellow director) or Mr Sheppard. It was her evidence on which CIAISL relied.

Ms Callaby’s witness statements included the following:

Ms Callaby’s evidence was that CIAISL’s purpose of establishing the Trust and making each contribution to it was to establish a fighting fund for CIAISL so that it could protect its business by offering discounts to customers, and that they were worried about the security of banks (in that they were concerned about the risk of insolvencies and of fraudulent attacks on their accounts). She denied that there was a connection between the loans and the Shareholders’ employment by CIAISL.

Mr Ghosh did not challenge Ms Callaby’s evidence relating to the change in fortunes of the motorcycle insurance business, or that there was a concern that their Type A business could be vulnerable to greater competition in the market. I therefore accept that evidence. He did, however, challenge much of her remaining evidence, including whether this was a reason for the establishment of the Trust or making contributions to the Trust, and whether there was a link between the loans and the Shareholders’ employment by CIAISL.

Mr Venables acknowledged that I may conclude that Ms Callaby failed to understand the precise effect of certain documents, but submitted that this was understandable as the drafting was poor. He invited me to conclude that Ms Callaby had trusted CIAISL’s advisers to get the documentation right. He noted that such trust might well have been misplaced; but the test is “wholly and exclusively”, not reasonably.

Much therefore depends on my conclusions as to Ms Callaby’s credibility. I was taken to Gestmin SGPS S.A. v Credit Suisse [2013] EWHC 3560 and Kogan v Martin [2019] EWCA Civ 1645.

HMRC relied on Gestmin SGPS S.A. v Credit Suisse [2013] EWHC 3560 (in particular at [15]- [23]) for the correct approach in assessing witness evidence in cases such as the present one, namely “to place little if any reliance at all on witnesses’ recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts”. HMRC noted in particular the following observations from the judgment of Leggatt J:

In the recent case of Kogan, there was evidence from two witnesses of fact, which was contradictory. The judge had placed little reliance on the witnesses’ recollections and instead based his factual findings on inferences drawn from documentary evidence and known or probable facts. Floyd LJ, giving the judgement of the Court of Appeal, set out the following when criticising the judge’s approach to the evidence and making findings:

As regards Kogan, Mr Ghosh emphasised that HMRC was not inviting me to ignore Ms Callaby’s evidence. HMRC’s position was that I should disbelieve it; noting that this is a commercial case, there are documents relating to the transactions and the purposes of the company, and those documents are the basis for the claiming of tax deductions worth millions of pounds.

I do not accept all of Ms Callaby’s evidence. My reasoning is as follows:

The above matters could simply be indicative of a lack of understanding of the documentation, and do not of themselves require a conclusion that her evidence as a whole is not credible. However, I also took account of the following:

Overall, my conclusion was that Ms Callaby was not a credible or reliable witness. It was notable that, despite Mr Venables having carefully set out in his detailed opening submissions the scenario of poorly drafted documents which were difficult to understand, use of standard forms which did not accurately reflect CIAISL’s own position, and a misplaced reliance on advisers, this was not supported by the evidence she gave. She refused to acknowledge that the resolutions were in the same form, that they had been provided to them by their advisers, and was reluctant to confirm that tax advice had been taken at all. I do not consider that my concerns can be explained by reference to the fallibility of human memory, even bearing in mind that it is now more than ten years since the Trust was established. Instead, I place little weight on Ms Callaby’s evidence where it is unsupported by documentary evidence or inferences from other facts. This is significant in the context of my consideration of CIAISL’s purposes in making the contributions and whether the loans were connected with the Shareholders’ employment by CIAISL or remuneration for such employment.

Section 54 CTA 2009 provides that a deduction is only allowed for expenses incurred “wholly and exclusively for the purposes of the trade”.

The Court of Appeal considered the wholly and exclusively test in Vodafone Cellular Ltd v Shaw [1997] STC 734, and Millett LJ set out the following propositions at [742e] to [743a]:

Mr Venables submitted that:

Mr Ghosh agreed that the test is the subjective intention of CIAISL but emphasised that it is for the Tribunal to determine what that was. He relied on:

Mr Ghosh submitted that there was a duality of purpose, albeit not involving a commercial purpose and a tax purpose, but a private purpose and a tax purpose.

Whilst the parties both made their submissions consistent with Vodafone, they diverged as regards Scotts Atlantic Management Limited v HMRC [2015] UKUT 66 (TCC). Scotts Atlantic had involved contributions to an employee benefit trust. HMRC had denied deductions for those contributions. The FTT held that Schedule 24 FA 2003 did not apply but that the claimed expenses had the purpose, alongside any purpose of remunerating directors and employees, of ousting Schedule 24, and that the dual objective meant that none of the claimed expenses were incurred wholly and exclusively for the purposes of the trade. The Upper Tribunal concluded that the deductions were within the scope of Schedule 24, but then went on to consider whether there was duality of purpose.

In considering whether there was duality of purpose, the Upper Tribunal took the following approach:

On the facts in Scotts Atlantic the Upper Tribunal concluded that a deduction was not available because “one purpose was to implement a pre-arranged scheme in order to obtain a tax deduction; the purpose was not simply to benefit employees and directors through the medium of an employment benefit scheme” (at [81]).

Both parties addressed in submissions the emphasis that the Upper Tribunal had placed on distinguishing between the object of the expense and the object of the means of incurring it (and Mr Venables drew attention to the fact that the appellant in that case had not cited the authorities on the meaning of tax avoidance).

In the light of the authorities, I need to consider whether the contributions were for the purpose of enabling CIAISL to carry on and earn profits in the trade. When conducting this exercise:

The contemporaneous documentation sets out CIAISL’s purposes using the following language:

Ms Callaby’s explanation in her witness statements and in her oral evidence was that CIAISL’s reasons for making the contributions were to establish a fighting fund from which they could provide discounts to customers and concerns relating to the security of banks (both in terms of the risk of insolvencies and the risk of fraud). She did not disavow the reasons stated in the resolutions.

HMRC asked the Tribunal to find that:

I assess the proposition surrounding marketed tax avoidance schemes and then the purposes put forward by CIAISL.

On the basis of the evidence before me, I am satisfied that CIAISL had entered into a scheme which had been marketed to it in a fairly standard form. That was apparent from the documentation (including the Trust Deeds, resolutions, Questionnaire, Request Letters and Finance Agreements) being very similar to those that were used by appellants in other published decisions of the FTT (including the decision of Judge Morgan and Mr Woodman in Marlborough DP Limited v HMRC [2021] UKFTT 0304 (TC) and my decision in Strategic Branding Ltd v HMRC [2021] UKFTT 474 (TC)).

The transactions involved a series of pre-ordained steps taking place. When resolving to make each contribution to the Trust, and instructing Lloyds to make the payment to the Baxendale Walker client account, CIAISL knew that the remaining steps would happen on each occasion, ie that the Shareholders would ask BTIL to transfer the funds received to MEL and MEL would then lend the money to some or all of the Shareholders. There was no evidence of decisions being taken by MEL which could have the potential (even if theoretical) to disrupt this chain of events. MEL did enter into the Finance Agreements but there was no evidence of any consideration of the decision to enter into such agreements.

The only divergence from this pattern was in respect of the Purported Contribution, but even though I have already concluded that this was not contributed to the Trust, nevertheless CIAISL knew when resolving to make this contribution what would then happen – this was evident from the terms of the JHL Loan and the emailed instructions to Lloyds.

The basis on which CIAISL decided to enter into the arrangements and make contributions to the Trust involved it agreeing to pay sizeable fees, notably a fee of 10% of each contribution made to the Trust. Mr Ghosh submitted that these fees cannot be explained in any other way other than that CIAISL was paying for a tax avoidance scheme; the Shareholders could simply have borrowed the money from CIAISL and that would not have involved paying these fees.

This submission requires me to assess what CIAISL knew about the tax treatment of the arrangements at the outset. A difficulty with the evidence was that Ms Callaby was not forthcoming in response to questions about the advice (particularly tax advice) which CIAISL had received when entering into the scheme.

It is clear from Baxendale Walker’s engagement letter that they did give tax advice to CIAISL. There was no direct evidence as to what that advice was; and Ms Callaby did not offer any evidence as to how CIAISL had engaged with Baxendale Walker. I infer that they were introduced to CIAISL by TGFP. There was other evidence that CIAISL had taken some tax advice (placing no weight for this purpose on the answer to the Questionnaire which said they had taken independent professional advice, as I am not satisfied that this was CIAISL’s own answer) – in the accounts of CIAISL for the year ended 31 December 2010 the contributions are included as administrative expenses. The notes include that “No taxation liability arose to the company as a result of such transaction”. This illustrates that they had taken some tax advice, or reached their own conclusion as to the tax treatment. Furthermore, it is apparent that CIAISL expected to be able to claim a deduction for corporation tax purposes for the contributions it made to the Trust – they were included as administrative expenses in the accounts and this was used as a starting-point for self-assessing their tax liability.

I agree with Mr Ghosh’s submission that it is not credible that CIAISL were not aware of the tax advantages purportedly offered by the Trust arrangements. CIAISL were willing to pay significant fees to enter into transactions which they did not fully understand, in circumstances where there was a simple comparator transaction namely a direct loan from CIAISL to the Shareholders.

I conclude that a purpose of CIAISL founding the Trust and making contributions was to secure a tax advantage in the form of deductions for CIAISL for the amount of the contributions in circumstances where it was not expected that the Shareholders would have any tax liability in respect of the loans to them from MEL. The question then becomes whether this was the only purpose of CIAISL, ie whether and how this needs to be considered alongside other (business) purposes of CIAISL.

In her witness statement and oral evidence Ms Callaby explained that making contributions to the Trust enabled CIAISL to set up a fighting fund, which was of benefit to their customers (as it reduced the price they would pay for insurance) and benefitted the business of CIAISL. Where insurers are quoting a rate for an insurance product that is too high, ie CIAISL would lose the customer’s business at that price, key managers within CIAISL have authority to offer and approve a discount to that rate being offered. The premium payable to the insurer remains the same. Mr Ghosh referred to this as CIAISL “subsidising” the rate, whereas Ms Callaby resisted this term and preferred “discounting”. Either way, this discount is offered to the customer at the point of sale, but CIAISL pays the full price to the insurer (although this could be several weeks later). Ms Callaby’s evidence was that CIAISL needed a fighting fund to be able to do this, and this protected their business.

I accept that CIAISL benefits from having the resources to offer such discounts and retain existing new customers or win new customers. However, I am not satisfied that this was the reason for making any of the contributions to the Trust. There are several reasons for reaching this conclusion:

The explanation that the contributions were made to provide a fighting fund to protect CIAISL’s business is not credible on the basis of all of the evidence available.

Ms Callaby’s evidence included that the decision to establish the fighting fund was prompted by a loss of confidence in banks. After the attempted frauds on CIAISL’s business account they had considered changing banks but decided to stay with Lloyds. The banking crisis had also left them concerned about the security of cash held in bank accounts.

These are potentially valid commercial concerns. The difficulty is that Ms Callaby offered little explanation as to how she had understood that the Trust arrangement would reduce this risk, and I do not accept that they were the reasons for making contributions to the Trust.

Concerns over the security of money held in bank accounts could potentially explain the choice of assets (eg investments in property) but does not explain the making of payments to a trust. Furthermore, the Shareholders each held substantial amounts of the funds they had borrowed from MEL in bank accounts (between £74,000 and £609,000 each), although Ms Callaby sought to draw a distinction between the vulnerability of business accounts and personal accounts - I infer she had in mind the FSCS protection scheme for personal accounts.

There was no explanation as to why holding money in personal accounts, or investing in non-cash assets, could not have been achieved by CIAISL making loans to the Shareholders directly or acquiring such assets itself. Mr Venables emphasised that the question is not whether the Shareholders’ beliefs or reasoning was reasonable; I agree, but unreasonable decisions do still need some form of explanation and I found that to be lacking. The lack of full explanation of the advice they had received (which might have explained what the Shareholders had understood by the arrangements) was problematic in this respect.

The Trust Deeds provide that the Beneficiaries of the Trust are Providers and their families. The definition of Providers is wider in the Original Trust Deed than in the Amended Trust Deed. Under the Original Trust Deed, they include persons who provide services, custom, products or finance to CIAISL, whereas under the Amended Trust Deed they are persons who have provided finance to CIAISL (together with their families, under both deeds).

The first resolution of CIAISL dated 6 December 2010 states that the purpose of making contributions was “funding the provision of discretionary benefits to providers of services, products, custom or finance” to CIAISL and of finance to the Trustees and various family members.

Ms Callaby was asked if this was the true purpose of the company, and she confirmed it was. She confirmed that those businesses on the Providers List were beneficiaries and the purpose of the Trust was to benefit them. I do not accept that evidence. In reaching this conclusion I do bear in mind Mr Venables’ submission that some purposes can sit alongside each other, and that benefitting third parties may still be a means of benefitting the trade (a submission with which I agree in principle, but not on the facts):

All of the resolutions of CIAISL also state that the proposed contribution reflects part of the economic cost to the company of earning its profits for that period. Ms Callaby did not understand this phrase and could not explain what was meant by it.

I do not accept that the purpose, or one of the purposes, of making contributions to the Trust was as stated in CIAISL’s resolutions.

I have already found that the Trust arrangements involved a series of pre-ordained steps taking place. One such step was the making of loans by MEL to the Shareholders, with that money then being able to be used by the Shareholders as they wished (as with any personal loan). CIAISL knew that this would happen (implicit in my finding that this was pre-ordained) and I have concluded that advancing the funds to the Shareholders was one of the purposes of CIAISL in making contributions to the Trust.

I accept that CIAISL wanted to be able to offer discounts to customers, and that it needed cash available to do this. I also accept that CIAISL needed to consider mitigating is exposure to risks in the banking sector. However, for the reasons set out above I am not satisfied that the making of contributions to the Trust was for these commercial purposes.

On the basis of the evidence before me, CIAISL paid contributions to the Trust such as had the result of reducing its profits to between £100,000 and £235,000 for each of the years in issue. There was no credible evidence as to the determination of the level of contributions to be made – Ms Callaby referred to the contributions as being made out of spare cash, but the evidence in respect of the Purported Contribution of £350,000 in December 2010 supports a conclusion that this was not money that CIAISL had spare or available to it in any event. I do not need to decide whether the £600,000 resolved to be contributed to the Trust in December 2010 is deductible (as that accounting period is not the subject of this appeal). However, these contributions (or purported contributions) do provide some context to subsequent transactions (and funded some of the loans to Shareholders which are the subject of the Regulation 80 Determinations and Section 8 Decisions). The steps taken in relation to the first two contributions do show that CIAISL’s resources were such that it did not want to, or could not, divest itself of £600,000.

I agree with HMRC that the only reason then left is the inevitable and inextricably linked consequence, namely obtaining a deduction for corporation tax for such contributions, part of which involved ensuring that the money was then in the hands of the Shareholders without incurring income tax liabilities themselves.

This conclusion means that, irrespective of whether or not CIAISL’s purposes are best described as tax avoidance or tax mitigation, or whether that is a valid distinction to be making in this context, the making of the contributions cannot be expenses incurred wholly and exclusively for the purposes of its trade.

CIAISL’s appeal against HMRC’s denial of corporation tax deductions for the contributions paid to the Trust is dismissed. Mr Venables accepted that the deductibility of the fees paid to Baxendale Walker (and others) in connection with the arrangements would follow the decision reached in relation to the contributions. I agree, and such appeal is similarly dismissed.

Section 1290 CTA 2009 restricts any deductions that would otherwise be allowable for an accounting period in respect of “employee benefit contributions” made or to be made. These provisions are only relevant if a deduction would otherwise be allowable for contributions to the Trust or the fees paid. On the basis of my conclusions above, these provisions are not relevant. However, I have set out below my conclusions on these provisions as both parties addressed this restriction in their submissions.

The issue is whether the contributions made to the Trust by CIAISL were “employee benefit contributions”, which involves considering whether the Trust was an “employee benefit scheme”.

As enacted, “employee benefit contributions” and “employee benefit scheme” were defined in s1291(1) and (2) CTA 2009. However, with effect in relation to acts or omissions occurring on or after 6 April 2011, s1291 was amended - the language “or persons linked with present or former employees of the employer” was added at the end of s1291(2), and s1291(4) was introduced providing specifically that, so far as not covered by s1291(2), “employee benefit scheme” also means an arrangement within s554A(1)(b) to which s554A(1)(c) applies.

HMRC’s position was that there was an employee benefit scheme within s1291(2) throughout the periods in issue, relying on s1291(4) in the alternative in relation to contributions made to the Trust from 6 April 2011. Mr Ghosh submitted that when considering whether there was an arrangement for the benefit of persons who are employees within s1291(2), the arrangement being considered includes the whole scheme, involving both contributions to the Trust and loans to Shareholders. The contributions have been used for the benefit of persons who are employees of CIAISL, and it is irrelevant that such persons are not and cannot be Beneficiaries under the Trust Deeds.

Mr Venables submitted that there was no employee benefit scheme as defined, either before or after the amendments to that definition came into effect. His submissions on s554A ITEPA 2003 are considered further below, but on the definition as enacted he submitted that the Shareholders were Excluded Persons under the Trust Deeds by virtue of their employment by CIAISL and could not therefore benefit from the Trust. Mr Venables submitted that HMRC’s position involves ignoring the legal effects of the documentation; yet they have expressly confirmed that they are not running a sham argument. The loans made to the Shareholders by MEL were commercial loans; and if such loans were found not to be commercial, then the making of such loans was a breach of trust and void as a matter of trust law.

I have concluded, as set out under “Income Tax – Part 7A” below, that the Trust arrangements are ones within s554A(1)(b) ITEPA 2003 to which s554A(1)(c) applies. They are therefore an “employee benefit scheme” for the purposes of s1291 by virtue of s1291(4).

Both parties approached their submissions on the basis that this would not be a complete answer to the issue before me because of the commencement date of the introduction of s1291(4). I disagree, but decided that, in the light of my conclusions reached on s54 CTA 2009 above, it would not be proportionate to seek further written submissions on this point after the hearing. The reason for my disagreement is that CIAISL’s appeal against the corporation tax assessments relates to the accounting periods ended 31 December 2011 to 31 December 2014. Whilst the first such period does include a period of just over four months before this change in law was effective, CIAISL did not make any contributions to the Trust during this period. It had made contributions (or purported to make them) in December 2010 but the deductibility of those amounts was not in issue before me. The first contribution in the accounting period ended 31 December 2011 was not resolved to be made until 13 May 2011 (and then paid in three tranches, the first of which was on 19 May 2011). All of these were thus acts occurring on or after 6 April 2011, to which s1291(4) applied.

I do however briefly set out my conclusions on s1291(2) in any event. Section 1291(2) provides that “employee benefit scheme” means a trust, scheme or other arrangement “for the benefit of” persons who are, or include, present or former employees of the employer. (The additional language which was added, also in relation to acts on or after 6 April 2011, is not relevant.)

Looking at the Trust Deeds alone, the Trust does not meet that definition, as employees are Excluded Persons and cannot be Beneficiaries. However, I agree with Mr Ghosh that s1291(2) requires consideration of the whole arrangement, as all of the transactions were pre-ordained and the definition contemplates that the scheme may be a “trust, scheme or arrangement”. On the facts, CIAISL did not understand the terms of the Trust Deed and I also find that CIAISL did not know that employees could not be Beneficiaries under the Trust Deed (notwithstanding the responses given in the Questionnaire). Instead, the scheme or arrangement which was actually implemented involved payments being made by CIAISL which could then be lent to the Shareholders, and such loans were made by a company they controlled. The arrangement was for the benefit of persons who are employees of CIAISL. The arrangement is within s1291(2).

Finally, I am mindful that the restriction does not apply if qualifying benefits have been provided out of the contributions during the period or within nine months from the end of it (for the purpose of s1290(2)(a)).

Qualifying benefits are provided if there is a payment of money or a transfer of assets which meets one of four conditions (s1292(1)), one of which is that the payment or transfer gives rise both to an employment income tax charge and to an NIC charge (s1292(2)). Section 1292(6) provides that these conditions are not met if the payment or transfer is by way of loan. As the benefits to the Shareholders were the loans under the Finance Agreements, these conditions are not satisfied. However, s1292(6A) was subsequently enacted and that provides that qualifying benefits are provided if a relevant step within Part 7A is taken and Chapter 2 of that Part applies by reason of the step. I have concluded that there was a relevant step within Part 7A and that Chapter 2 applies. On this basis, in principle there would appear to have been qualifying benefits such that the restriction does not apply. The relevant transitional provisions were not before me and at the hearing the parties agreed that if the application of s1290 mattered (ie the contributions would otherwise be deductible), they could provide further written submissions. As I have concluded that no such deduction would otherwise be available, and I am only reaching conclusions on the employee benefit scheme rules so far as the points were argued before me, I considered it would not be proportionate to seek further submissions on the transitional arrangements.

HMRC issued Discovery Assessments for two of CIAISL’s accounting periods, those ended 31 December 2011 (the assessment being issued on 15 December 2015) and 31 December 2012 (the assessment being issued on 3 November 2016). The burden of proof is on HMRC to establish, on the balance of probabilities, that the required conditions for issuing the Discovery Assessments were met.

HMRC’s position was that:

Mr Venables’ challenge in his oral submissions was twofold:

Before considering the evidence of Mr Midwinter, I remind myself of the authorities on what constitutes a discovery. This was considered by the Upper Tribunal in Charlton & ors v HMRC [2013] STC 866 at [37]:

This description was approved by the Supreme Court in Tooth at [63] to [65]. It is apparent from this that there must be a new conclusion reached by an officer, and that the officer must be “acting honestly and reasonably”. As recently confirmed by the Upper Tribunal in Hargreaves v HMRC [2022] UKUT 34 (TCC) at [41], a mere awareness that HMRC should prudently ask further questions is not enough to constitute awareness of an actual insufficiency.

Mr Midwinter provided a witness statement and was cross-examined on his evidence. He has been with HMRC (and its predecessor) for a number of years, but first specialised in tax avoidance in 2012. Between July 2012 and April 2015 he was primarily involved in investigating users of employee benefit trusts. Since April 2015, he has specialised in investigating users of schemes sold by Baxendale Walker entities, primarily the corporate remuneration trust scheme.

I found his evidence to be clear and reliable; he explained the actions he had taken and the conclusions he had reached, and those explanations were consistent with the documentary evidence. On the basis of his evidence, I find as follows:

On the basis of the above findings, I am satisfied that Mr Midwinter made a discovery within paragraph 41 that an assessment to tax was or had become insufficient, and that for the accounting period ended 31 December 2011 that discovery was made on 14 December 2015 and that for the accounting period ended 31 December 2012 that discovery was made on 1 November 2016. In this regard:

One of Mr Venables’ challenges to the validity of the Discovery Assessments (and the only challenge that applied to both) was that the discoveries had become stale by the time the assessments were issued in December 2015 and November 2016.

On the basis of the facts as I have found them, there can be no question of the discoveries made by Mr Midwinter having become stale. Furthermore, following the decision of the Supreme Court in Tooth, it is clear that there is no doctrine of staleness.

I accept Mr Venables’ submission that the ratio of the decision of the Court of Appeal in Tooth was that the officer must have newly discovered that an assessment to tax is insufficient, ie they accepted the taxpayers’ submission that a discovery, or a new conclusion, can become stale if an assessment is not made within a reasonable period. It is also evident that the decision of the Supreme Court in Tooth that there is no place for the idea that a discovery which qualifies as such should cease to do so by the passage of time was obiter. The Supreme Court had decided the appeal in favour of the taxpayer on the basis that there was no deliberate inaccuracy.

Mr Ghosh acknowledged that statements by the Supreme Court in Tooth were obiter, but drew my attention to the decision of the Court of Appeal in Barton and Booth v The Queen [2020] EWCA Crim 575 where the Court of Appeal said at [104] that where the Supreme Court itself directs that an otherwise binding decision of the Court of Appeal should no longer be followed and proposes an alternative test, the Court of Appeal is bound to follow what amounts to a direction from the Supreme Court even though it is strictly obiter. In Tooth the Supreme Court had heard lengthy submissions on staleness and recognised that the submissions made on behalf of HMRC around staleness had wider significance than the present case (at [65]).

I have no hesitation in following the reasoning (albeit obiter) of the Supreme Court in Tooth.

As regards the December 2012 Discovery Assessment, Mr Venables challenged the process by which this had been issued, submitting that paragraph 41(1) requires that the person who makes the discovery must be the person issuing the assessment and that the various statutory provisions dealing with delegation of tasks to other officers do not assist and cannot override the specific requirements of paragraph 41. He submitted that for a valid discovery, the taxpayer must be told who made the discovery and raised the assessment to the best of their opinion. I do not accept those submissions:

For there to be a valid discovery, HMRC must establish that the conditions in either paragraph 43 or paragraph 44 were satisfied. Mr Midwinter had relied on paragraph 44, and Mr Ghosh submitted that in addition I should find that paragraph 43 was satisfied. I am mindful that Mr Venables did not challenge HMRC’s position that paragraph 44 was satisfied, and did not make any submissions on paragraph 43.

Paragraph 44(1) requires that at the time when HMRC ceased to be entitled to give a notice of enquiry into the return, they could not reasonably have been expected, on the basis of the information made available to them before that time, to be aware of the insufficiency. On the basis of the evidence before me, I agree that this requirement was satisfied. It is clear that the question posed by this condition is whether a hypothetical officer, on an objective analysis, is made aware of an actual insufficiency in the assessment by the matters disclosed in the information made available. The information available, namely the returns of CIAISL for each relevant accounting period, would not permit such an awareness in respect of either accounting period.

As to whether the insufficiency was brought about carelessly by CIAISL for the purposes of paragraph 43, I do not need to reach a conclusion on that matter, but if I were required to decide the point I would be minded to conclude that HMRC had satisfied their burden of proof. Ms Callaby had not understood the documentation which CIAISL was entering into, the reasons for entering into the transactions set out in CIAISL’s resolutions make no reference to what are now said to be the purposes of the arrangement and, against this background, there was insufficient explanation of the advice taken and relied upon by CIAISL (in circumstances where reliance on advice, even on bad advice, might otherwise assist with demonstrating that CIAISL had not been careless notwithstanding its lack of understanding of the transactions it was entering into).

I am satisfied that the Discovery Assessments are valid.

Section 9(2) ITEPA 2003 provides that the “net taxable earnings from an employment” in the year is the amount of employment income which is charged to tax under that Part for the particular tax year.

Section 62 then explains what is meant by “earnings” and at s62(2) states that earnings, in relation to an employment, means:

HMRC’s position was that contributions to the Trust were “redirected earnings”, ie amounts which represent earnings due to employees/directors but which instead of being paid directly to the employees as wages are being paid to someone else with the employee’s consent or at the employee’s behest. Mr Ghosh accepted that the principle of redirected earnings can only apply if and to the extent that the amounts paid by CIAISL to the Trust were a reward for work done. However, it was HMRC’s case that this was the position.

Mr Venables denied that any of the amounts were redirected earnings of any of the Shareholders. He accepted that where a person is entitled to earnings but directs that they are paid to a third party, they still remain his earnings when paid to that third party. By contrast, when a payment is made to a third party which the employee was not entitled to require to be paid to him, the payment is not a payment of earnings. On the facts, he submitted that the payments made to the Trust were not due to the employees; there is a difference between earnings due and earnings merely paid; furthermore, the employees are Excluded Persons under the Trust and thus prohibited from benefitting from the contributions.

I consider first some of the authorities to which I was referred, before then considering the facts before me.

Mr Venables took me to the decision of the Supreme Court in Forde & McHugh Ltd v HMRC [2014] UKSC 14 in some detail. Lord Hodge delivered the judgement with which the remainder of their Lordships agreed. That appeal concerned NICs (rather than income tax) and the treatment of payments to an unapproved retirement benefits scheme. Mr McHugh became a member of the scheme and the company made a contribution to the scheme for his benefit. When the contributions were made Mr McHugh was 54 years old and did not have a vested interest in the assets of the scheme under the terms thereof, as his retirement age was specified to be 60.

In Forde & McHugh it was recorded that it was agreed between the parties (at [4] of the decision) that the payment was for Mr McHugh’s benefit; the question was whether the payment was “earnings” for the purposes of SSCBA 1992. Earnings was defined by s3 of that Act as including any remuneration or profit derived from an employment (ie it does not use the word emoluments). The Supreme Court held it was not.

Lord Hodge described HMRC’s position as “remarkable” (at [15]) and said that counsel for HMRC had to submit that earnings are paid to an earner both when assets are transferred to a pension scheme and also when payments are made from the trust fund. On this approach double-counting was avoided only by the regulations which disregard payments by way of pension and payments by way of relevant benefits pursuant to an unapproved retirement benefits scheme. Lord Hodge gave three reasons why HMRC’s position was wrong:

Mr Venables noted that this case had involved strong facts for HMRC (as the contributions were made for Mr McHugh’s benefit and related to his services). He submitted that the subsequent decision of the Supreme Court in Rangers had to be considered in the light of this decision (drawing attention to the decision in Rangers being just three years later, and Lord Hodge also giving the leading judgement).

Mr Ghosh’s submissions (on both Forde & McHugh and Rangers) acknowledged that it will be a question of construction of the facts in each case, but pointed out that in Forde & McHugh no argument had been advanced as to whether a payment into a pension or bonus fund might properly be analysed as a payment out of the earner's salary as in Smyth v Stretton (1904) 5 TC 36, a point which was made by Lord Hodge at [20].

In Rangers Lord Hodge set out the question before the Supreme Court at [1] as “whether an employee's remuneration is taxable as his or her emoluments or earnings when it is paid to a third party in circumstances in which the employee had no prior entitlement to receive it himself or herself”. The sums paid to the trust were agreed to be part of each employee’s remuneration.

Lord Hodge’s consideration of the facts included:

Having set out the question at [1], Lord Hodge then described the central issue in the appeal as “whether it is necessary that the employee himself or herself should receive, or at least be entitled to receive, the remuneration for his or her work in order for that reward to amount to taxable emoluments” (at [36]). He concluded that there is no such requirement. His reasons included that the primary legislation taxes the employee whose work gives rise to the remuneration, not the recipient of the earnings (at [37]) and that the concept of emoluments is not generally restricted by requiring payment to a specific recipient (at [38]). He could see nothing in the wider purpose of the legislation, which taxes remuneration from employment, which excludes from the tax charge or the PAYE regime remuneration which the employee is entitled to have paid to a third party (at [39]). From this, he set out the general rules as being:

Lord Hodge referred to Forde & McHugh and said that in that case (and others on which the taxpayer had relied), the court was not concerned with the identity of the recipient of the benefit; the focus was on the source or nature of the right which the employee received (at [49]).

It is clear from the authorities that the contributions paid by CIAISL to the Trust (or to the Baxendale Walker client account) are not prevented from being taxable as earnings by the fact that they were not paid directly to the Shareholders themselves. That was not disputed between the parties. The question is whether on the facts the amounts paid by CIAISL are earnings derived from employment, ie a reward for their work as employees.

Mr Ghosh submitted that the contributions were all such a reward, as nothing else explains why this money was received by the Shareholders to spend on private assets. Mr Ghosh accepted that this argument posed a higher threshold for HMRC than the connection which was required by Part 7A ITEPA 2003; but submitted nevertheless that it was met (albeit that the burden of proof remains on CIAISL). Mr Ghosh referred to the Shareholders having reduced their salaries following advice and that they had not previously taken dividends from LEM when explaining his submission that the contributions must therefore be reward for work done rather than connected to their indirect shareholdings.

I make findings on some of these matters in the context of Part 7A below. Whilst my conclusions on the facts are that there is a connection or link between the contributions to the Trust and the Shareholders’ employment by CIAISL (for the reasons explained below), I do not accept HMRC’s submission that the contributions are earnings on general principles.

As acknowledged by Mr Ghosh, earnings includes a connotation of a reward for services. In Forde & McHugh the Supreme Court focused on what was received by the employee in the context of a contingent rather than a vested interest in the fund. Here, all of the amounts paid to the Shareholders were paid to them under the Finance Agreements, pursuant to which they have an obligation to repay those amounts to MEL. Whilst the Shareholders control MEL, and they have not repaid those sums which are already due, HMRC have not argued that the Finance Agreements do not have legal effect in accordance with their terms, and accordingly I find that the Shareholders do have an obligation to repay the amounts lent to them. I am not satisfied that receiving such a loan is a reward or benefit, even though I have found that there is a connection with their employment. For this reason, I agree with Mr Venables that the contributions are not earnings on general principles.

The charge under Part 7A ITEPA 2003 arises under s554Z2, which provides that if Chapter 2 applies by reason of a relevant step, the value of the relevant step counts as employment income of A (as defined in s554A(1)) in respect of A’s employment with B (also as defined in s554A(1)).

The conditions for Chapter 2 to apply are set out in s554A(1):

The submissions of Mr Ghosh, Mr Herbert and Mr Venables are considered more fully as I address each of the required conditions, but at the outset I note the key points as follows.

For HMRC it was submitted that all of these conditions were satisfied:

Mr Venables position was as follows:

It was common ground that condition (a) is met because the Shareholders (“A” for this purpose) are employees of CIAISL (“B”).

Condition (b) applies if there is an arrangement to which A is a party or which otherwise “covers or relates to” A. Section 554Z(3) provides that “arrangement” includes an agreement, scheme, settlement, transaction, trust or understanding (whether or not it is legally enforceable). This is thus widely drawn.

On the basis of the facts as I have found them, there is an arrangement which involved CIAISL making contributions to the Trust, which amounts were then transferred to MEL and lent to the Shareholders. The Shareholders were party to that arrangement (as borrowers under the Finance Agreements). I also conclude that the arrangement “covers or relates to” the Shareholders for this purpose as the contributions to the Trust were to be provided to them by way of the loans.

Condition (c) will be met if it is reasonable to suppose that, in essence, the relevant arrangement, or the relevant arrangement so far as it covers or relates to the Shareholders, was:

On the basis of the facts as I have found them, in particular that the steps were pre-ordained in that it was known by CIAISL at the time it resolved to make the contributions that the funds would be transferred to MEL and MEL would make loans to the Shareholders, I am satisfied that, with the exception of the Purported Contribution, it is reasonable to suppose that the relevant arrangement was a means of providing loans to the Shareholders.

I have concluded that the Purported Contribution was not made to the Trust, but was borrowed from and repaid to JHL. Whilst MEL did enter into Finance Agreements with the Shareholders, such loans were not in fact made. In consequence, to the extent that these amounts are included in the Regulation 80 Determinations (and the Section 8 Decisions), CIAISL’s appeal is allowed. (Neither party offered detailed submissions on quantum and it was not clear to me whether or not the £350,000 or the loans purported to be made out of this contribution were included in the Determinations or Decisions. As this decision is on the principle of liability only, it is appropriate for this to be resolved between the parties, applying to the Tribunal if they are unable to reach agreement.)

The main issue to be addressed in the context of this condition is whether the loans were provided “in connection with” their employment with CIAISL.

Mr Venables submitted that the loans to the Shareholders were made in connection with their indirect shareholdings in CIAISL. At worst, he submitted, the Trust arrangement is a profit extraction scheme for the benefit of shareholders in their capacity as shareholders; not a disguised remuneration scheme for the benefit of directors and employees.

Mr Ghosh referred to Barclays Bank plc v HMRC [2007] EWCA Civ 442 at [18] to [26] and submitted that there was a clear and visible connection between the loans and the Shareholders’ employment.

I take the following from the decision of the Court of Appeal in Barclays, noting that different statutory provisions were in issue in that case:

All three Shareholders were employed by CIAISL at all relevant times, and Mr Blundell and Ms Callaby were also directors of CIAISL. Equally, the Shareholders were the shareholders of LEM, which was the sole shareholder of CIAISL, and they were thus indirectly the sole shareholders of CIAISL. There are thus potentially competing claims for connection. I do, however, agree with the principle set out in Barclays that something, ie the loans in this case, can be connected with more than one thing - the connection required by s554A(1)(c) does not need to be an exclusive connection.

For the purpose of assessing whether the loans are made in connection with the Shareholders’ employment I was referred to various evidence, albeit that some of those matters were acknowledged to be neutral. I make the following findings:

Some of these facts are neutral when considering whether there was a connection with the Shareholders’ employment – notably the use of the money to acquire personal assets.

Furthermore, I agree that there is a connection between the making of the loans and their shareholdings in LEM, following the approach in Barclays that a payment made to every member of a class is likely to be made in connection with that class. However, this does not preclude the existence of a connection with employment as well.

Mr Ghosh placed significant weight on the drafting of the Request Letters, and the reference in the later versions to the Founder. I have agreed that the Request Letters were, in substance, from CIAISL. I do not consider that this provides a complete answer as to capacity, as it is plausible that the Shareholders were making their request as indirect shareholders of the company. Furthermore, the capacity in which the transfer was requested (or even directed or authorised) does not necessarily dictate the capacity in which the Shareholders were then advanced the loans.

However, against the background that LEM had not paid dividends to the Shareholders (such that there was no pattern of assets available for distribution being paid out by way of dividend), the Shareholders agreed to take significant salary reductions (taking account of the percentage cut for this purpose, acknowledging that the reduction is small compared to the amount of the loans) with no evidence of a reduction in their duties, loans were made of unequal amounts on different occasions notwithstanding that they are (almost) equal shareholders in LEM, I have concluded that the loans were provided to the Shareholders in connection with their employment with CIAISL. I am reinforced in this conclusion by Ms Callaby’s own evidence that the only connection the Shareholders had to CIAISL was as employees, which she described as a “serious connection”.

This condition requires that “a relevant step is taken by a relevant third person”, and a “relevant step” is defined as a step within s554B, s554C or s554D.

HMRC’s written submissions took the position that there were many such steps taken by relevant third persons (with such persons including BTIL, MEL and Baxendale Walker). In his oral submissions Mr Ghosh focused on the relevant step being a payment of money within s554C(1)(a). Accordingly, he submitted that the following were relevant steps taken by relevant third persons:

Mr Ghosh submitted that it was irrelevant whether the action was taken in breach of trust, led to a resulting trust or the loan not being one the lender had power to make. An arrangement does not need to be legally enforceable and it follows from this that each relevant step does not need to be legally enforceable.

Mr Venables relied on the changes made to s554A(2) by Finance Act 2017 (“FA 2017”) with effect for relevant steps taken on or after 6 April 2017, and submitted that the actions relied upon by HMRC were not relevant steps as they were not a payment for this purpose.

Section 554C(1)(a) provides that a person takes a step within this section if that person “pays a sum of money to a relevant person”. A relevant person means A or a person chosen by A or within a class of persons chosen by A and includes, if a person is taking a step on A’s behalf or otherwise at A’s direction or request, any other person (s554C(2)). Section 554Z(7) provides that references to the payment of a sum of money include (in particular) references to the payment of a sum of money by way of a loan.

This language is straightforward. Absent any arguments around validity and trusts, I would have no doubt in concluding that the arrangements involved relevant steps being taken, being (at the very least) the transfer from Baxendale Walker’s client account to MEL’s account and the loan of that money by MEL to the Shareholders. They were visible steps, between relevant persons, and money moved enabling the Shareholders to have access thereto and to spend it as they wished. The question is therefore whether Mr Venables’ submissions as to the actions involving breach of trust are made out on the law or on the facts. I set out below the changes made to the definition, the Trust Arguments and the requirement that there be a “payment” and consider these in the context of the relevant condition.

Section 554A(2) was amended by FA 2017 to read:

The Explanatory Notes to Finance (No 2) Bill 2017 set out that the changes made to the definition of “relevant step” were “to put beyond doubt that a relevant step still occurs where the underlying transaction is void or in breach of trust”. Mr Venables submitted that I should not rely on the Explanatory Notes when interpreting the provision as in force during the periods in issue - the changes introduced by FA 2017 did make a substantive difference to the application of Part 7A.

The Trust Arguments put forward by Mr Venables were in the alternative – Mr Venables acknowledged that the first submission was inconsistent with CIAISL’s position that it was entitled to a deduction for the contributions; the second did not have that inconsistency. Those arguments were:

I have already allowed the appeal to the extent it relates to the Purported Contribution. The discussion below does not address that different fact pattern.

I accept Mr Herbert’s submissions that the remaining contributions were validly made by CIAISL to the Trust:

Mr Venables submitted that:

I agree that a shared mistake does not change the underlying facts; but on balance the evidence supports the conclusion that not only did everyone consider that a contribution had been made to the Trustee as trustee of the Trust, but this was also the reality. Once CIAISL had instructed Lloyds to make the payment and such payment was made to the Baxendale Walker client account, CIAISL had done all that was necessary to give BTIL control over that money, and that transfer was binding upon CIAISL. BTIL did then exercise control over that money, directing how it was to be transferred.

Mr Venables’ alternative submission was that even if the Trust had been validly settled, MEL did not have authority to make the loans to the Shareholders. He submitted that:

Whilst I agree that there is no valid documentary evidence of BTIL appointing MEL as its nominee, the evidence does support a conclusion that it had in fact done so. The Request Letters sent to BTIL asked that the trust assets be transferred to MEL for management, MEL entered into the Finance Agreements with the Shareholders expressly as nominee of BTIL, BTIL directed that the funds in the Baxendale Walker client account be transferred to MEL, and this was the pre-ordained series of steps which all parties knew would happen. I conclude that BTIL did agree to MEL taking possession of the trust assets.

Furthermore, the Trust Deeds permit the making of loans to the trust assets, even to Excluded Persons (such as the Shareholders). I am therefore satisfied that the loans were valid.

These conclusions mean that I am satisfied that there was no breach of trust in any event, and that there was a payment of a sum of money from the Baxendale Walker client account to MEL and from MEL to the Shareholders within s554C(1)(a).

Even if I had accepted Mr Venables’ submissions that the Trust had not been validly constituted or that the loans by MEL to the Shareholders were invalid, I would still have concluded that there had been a “relevant step” for the purpose of s554A(1)(d). I agree with Mr Ghosh that the changes that were made by FA 2017 did not change the position. There is nothing in the legislation as in force prior to that time (ie that with which this appeal is concerned) that requires that the steps taken must be legally enforceable; and I do not consider this is required by the definition of a relevant step as a payment of a sum of money.

I was referred to the decision of the Court of Appeal in Clark v HMRC [2020] EWCA Civ 204 for guidance on the interpretation of the word “payment”. Henderson LJ set out the issue as follows:

Before addressing the detailed submissions in relation to the statutory language and the authorities, Henderson LJ observed that:

Henderson LJ considered various authorities, including the decision of Arden J in Hillsdown Holdings plc v IRC [1999] STC 561. Hillsdown concerned a transfer between two exempt approved pension schemes which then led to an extraction of surplus from the transferee by the employing group (on which tax was paid). Several years after the transfer the Pension Ombudsman ordered the employer to repay this surplus to the fund. The company then took action against HMRC to recover the tax which had been paid. The question before the High Court was whether the tax had been due to HMRC, which in turn depended on whether there had been a payment to the employer. HMRC’s argument was that money had actually moved, the language was clear and unambiguous and there was no need to apply a purposive construction.

Arden J concluded that the monies had never in reality left the scheme. The charging provision was looking at the real transfer of an asset, and referred to a payment being “out of” the fund, which indicated that the payment must result in funds effectively leaving the fund, rather than a payment which does not have the effect of changing the ownership of the monies paid and is in fact reversed.

Henderson LJ set out in Clark that a “critical difference” between the two factual situations was that in Hillsdown the sums paid were authorised amounts intended to reduce a scheme surplus whereas Clark concerned unauthorised sums transferred to or in respect of a scheme member. The charge to tax on unauthorised member payments “would become self-defeating” if it did not apply to cases where the payment was made in breach of trust (at [62]).

As both Mr Ghosh and Mr Venables recognised, the context in which the word “payment” was used and the legislative scheme in question permeates the reasoning in Clark. I consider that the present situation is akin to that in Clark. The practical reality of the pre-ordained steps which took place is that the Shareholders have use of the funds which CIAISL had resolved to contribute to the Trust. I agree with Mr Ghosh that Part 7A is anti-avoidance legislation which seeks to prevent individuals from extracting cash tax-free in circumstances where the monies are advanced in connection with their employment. The legislation is clear that the arrangements with which these provisions are concerned does not need to be legally enforceable, and I consider that there is no basis for a conclusion that I should construe the word “payment” in such a way as to introduce this requirement.

Section 554A(1)(e) will be satisfied if it is reasonable to suppose that, in essence, the relevant step was taken (wholly or partly) in pursuance of the relevant arrangement.

On the basis of my findings in relation to pre-ordained steps and the purpose of making the contributions, this condition is satisfied.

Where the conditions in s554A(1) are satisfied, the value of any relevant steps taken on or after 9 December 2010 is taxable as employment income under s554Z2.

Mr Venables submitted that the transfer of bare legal title to money does not “involve” a sum of money for the purposes of s554Z3(1) – a relevant step involves such a sum only where it involves a transfer of beneficial ownership.

Mr Ghosh submitted that the value can only be the principal amount of the loans, irrespective of whether the loans are legally enforceable or were the product of steps that are legally unenforceable.

I accept Mr Ghosh’s submissions. Section 554Z3(1) provides that if the relevant step involves a sum or money, its value is the amount of the sum; s554Z3(2) provides that “in any other case” the value is market value or cost (if higher). The relevant steps in this appeal involved a sum of money, including the payments from MEL to the Shareholders, and s554Z3(1) is clear and unambiguous.

I have therefore concluded that Chapter 2 of Part 7A applies to each of the loans made by MEL to the Shareholders, with the result that the value of those steps (being the amount lent) counts their employment income.

Whilst HMRC’s written submissions state that the December 2010 contributions fund transactions which are covered by the PAYE/NIC aspects of the appeals, it is not clear to me whether the Regulation 80 Determinations have assessed any amounts in respect of the Purported Contribution. To the extent that such amounts are included, the appeal is allowed as I am not satisfied that this funded any loans to the Shareholders. In respect of all other loans made to the Shareholders, the appeals are dismissed.

It was common ground that, subject to one specific provision, the question as to whether CIAISL was liable to account for NICs would follow the income tax treatment.

The specific area where the parties disagreed was as to whether the contributions to the Trust fell within the exception in paragraph 5 of Schedule 3 SSCBA 1992.

Paragraph 1 of Part X of Schedule 3 provides that the payments listed in that Part are disregarded in the calculation of earnings. Paragraph 5 lists a payment of or in respect of a “gratuity or offering” which satisfies the condition in either 5(2) or 5(3) and is not within 5(4) or 5(5).

Regulation 22B SSC Regulations 2001 (which applies with effect from 6 December 2011) provides that amounts treated as employment income by Part 7A ITEPA 2003 are also treated as remuneration derived from an employed earner’s employment for the purposes of s3.

Mr Venables submitted that the exception provided by paragraph 5 could apply to exempt the contributions, albeit that the reasoning differed according to whether I found against CIAISL on the basis that the contributions were redirected earnings (on Rangers principles) or taxable under Part 7A:

Mr Ghosh’s primary position was that the amounts lent to the Shareholders were simply not gratuities or offerings, they were sums advanced either as reward for work done or in connection with their employment. It did not matter for this purpose that they were voluntary. Alternatively, neither of the conditions in 5(2) or 5(3) were satisfied – the amounts were paid indirectly by CIAISL, and as the steps were pre-ordained, the amounts were allocated, as CIAISL and MEL knew how the amounts were to be lent as regards each Shareholder.

Whilst I accept that CIAISL was not legally required to make these payments to the Shareholders, my finding that they were made in connection with their employment means that I have concerns as to whether it is realistic to regard the payments as gratuities or offerings. I do not therefore rely on the opening requirements of paragraph 5(1) in reaching my conclusion. Instead, I agree with Mr Ghosh that neither of the conditions in 5(2) or 5(3) were satisfied:

I have therefore concluded that the exception in paragraph 5 does not apply, and therefore the payments were part of the Shareholders’ earnings and liable to NICs.

It is not therefore necessary for me to consider Regulation 22B. However, I would briefly note that as I have concluded that the loans made by MEL to the Shareholders are treated as employment income by Part 7A, I accept Mr Ghosh’s submission that those loans made from and including 6 December 2011 are to be treated as remuneration derived from an employed earner’s employment for the purposes of s3 SSCBA 1992 irrespective of my conclusions on paragraph 5. If I had concluded that the payments were within paragraph 5 and thus disregarded in the calculation of earnings, Regulation 22B would operate to override this by providing expressly that the payments are treated as remuneration derived from employment.

As with the Regulation 80 Determinations, it is not clear to me whether the Section 8 Decisions include amounts in respect of the Purported Contribution. To the extent that such amounts are included, the appeal is allowed. In respect of all other loans made to the Shareholders, the appeals are dismissed.

This decision is made in principle only, and not on quantum:

In the event that the parties are not able to agree quantum of the assessments, determinations and decisions within 56 days of this decision becoming final, a further application shall be made to this Tribunal.

The question of the correct accounting treatment of the contributions to the Trust has been deferred to be heard, together with any relevant evidence, if necessary, at a subsequent hearing. On the basis of my decision, no such further hearing is necessary. If that ceases to be the case, the parties shall apply to the Tribunal for further directions.

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

Release date: 04 MAY 2022