AD Bly Groundworks and Civil Engineering Limited & Anor v The Commissioners for HMRC

The Appellants appealed to the First-tier Tribunal (Tax Chamber) (the “FTT”) against closure notices issued by the Respondents (“HMRC”) denying corporation tax deductions claimed by the Appellants in respect of certain liabilities relating to future pension payments. HMRC contended that the liabilities were not deductible because they were not incurred wholly and exclusively for the purposes of the Appellants’ respective trades, and, alternatively, because they were disallowed under section 1290 of the Corporation Tax Act 2009 (“CTA 2009”).

In a decision released on 26 November 2021 (the “Decision”) the FTT dismissed the appeals. The Appellants appeal against the Decision.

References below in the form FTT[x] are to paragraphs of the Decision.

A D Bly is a provider of civil engineering and groundwork contracting services. At the relevant times, it had seven directors and around 220 employees. CHR is engaged in the wholesale travel agency business. It had two directors and around 20 employees.

The Appellants entered into contractual arrangements with directors and other key employees relating to an Unfunded Unapproved Retirement Benefit Scheme (“UURBS”) under which the Appellants promised to provide those employees with a pension in the future. In the case of each Appellant, the pensions were calculated by reference to the estimated profits for the relevant year. In each case, the aggregate amount of the pensions was set at 80% or 100% of the estimated profits before tax. Each company made a provision in its accounts in respect of its liability to make these future pension payments to employees, and claimed a deduction in calculating its profits for corporation tax purposes to reflect that provision.

HMRC disallowed the deductions and issued closure notices. Notices were issued to A D Bly for the accounting periods ended 30 November 2012 and 30 November 2013, and to CHR for the accounting periods ended 31 March 2013 and 31 March 2014.

The UURBS had been proposed to the Appellants by their accountants, Charterhouse (Accountants) Limited (“Charterhouse”). The UURBS had been notified to HMRC in accordance with the Disclosure of Tax Avoidance legislation in section 304 of the Finance Act 2004 and allocated a scheme reference number. Charterhouse had marketed the UURBS to other companies, whose claims for corporation tax deductions had also been disallowed, and there were a number of other appeals to the FTT. The appeals by the Appellants had been designated as lead cases under Rule 18 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.

At FTT[77], the FTT summarised the agreements entered into by the Appellants (the “Unfunded Pension Agreements”) as follows:

In addition to extensive documentary evidence, the evidence considered by the FTT included witness statements and evidence from Mr Galpin, the managing director and sole shareholder of CHR, and Mr McSkimming and Mr Helliar, managing director and director respectively of A D Bly. The FTT also considered a joint statement of experts as to accounting issues relating to the arrangements, noting that the question of the appropriate accounting standard to apply was not an issue in the appeal: FTT[21].

The FTT concluded that Mr Helliar’s evidence was largely irrelevant to the periods in question: FTT[12]. As regards the other two witnesses, the FTT stated that they had been assisted by Charterhouse in writing their statements, and “passages in the two witness statements were strikingly similar”, concluding that “to a large extent, Charterhouse told both witnesses what to say and how to say it”: FTT[20].

The FTT made separate findings of fact in relation to each Appellant. Its findings in relation to A D Bly included the following:

The FTT made findings of fact on similar issues in relation to CHR, with the material difference that prior to the periods under appeal CHR was found to have transferred its trade, employees and certain related assets and liabilities to a limited liability partnership, CHR (Travel) London LLP. The effect was – as the FTT found – that the principal activity of CHR became being a member of a trading limited liability partnership. CHR itself had no employees during the periods in question. Very broadly, the FTT’s findings followed a similar pattern to those made in relation to A D Bly, with reports again prepared by Synergis and FLB. In 2013, CHR made unfunded pension provisions equal to 80% of the company’s projected pre-tax profits for the year, and in 2014 equal to 100% of projected pre-tax profits, even though FLB’s report for 2014 had only recommended a provision equal to 80% of that figure. At the date of the FTT hearing, no pensions had been paid by CHR: FTT[51]-[76].

The FTT identified the issues in the appeal, at FTT[9], as follows:

As regards the first issue, section 54 CTA 2009 provides as follows:

At FTT[80], the FTT recorded that “the parties agreed that the test for determining whether an expense or, as in this case, a provision in respect of the liability to make a future payment has been incurred wholly and exclusively for the purposes of a trade is as set out in the decision of the Upper Tribunal in Scotts Atlantic Management Ltd and another v HMRC [2015] UKUT 66 (TCC) (“Scotts Atlantic”)”. The FTT then set out paragraphs [50]-[55] of that decision, which summarise the well-established principles to be drawn from the leading authorities in this area. The FTT stated that the decision in Scotts Atlantic, which was bindingon the FTT, showed that it was necessary to determine the object of each Appellant in incurring the liability: FTT[81] (Footnote: ¹).

Having summarised the arguments of the parties, the FTT stated as follows, at FTT[88]:

In considering the witness statements produced by the Appellants, the FTT concluded that the weight to be given to the statements as to the objects of making the provisions in the accounts was considerably reduced by the issues it had identified in relation to the evidence (see paragraph 10 above). The FTT found that the proposal to enter into the UURBS was “brought to the Appellants as a tax planning scheme by Charterhouse”: FTT[91]. Having considered all the evidence, including the limited roles of Synergis and FLB, the absence of any advice to the companies regarding comparative remuneration levels and the “warning notice” in the consultant engagement letters regarding tax, the FTT stated, at FTT[95]:

The FTT took into account the failure by the Appellants, without discussion or explanation, to limit the relevant pension provisions as suggested by the consultants. The FTT was also “unconvinced by the commerciality of the arrangements”, and considered that in relation to the liabilities incurred by the Appellants “the future business risk remains substantial”: FTT[98]. The FTT’s conclusion, at FTT[99], was this:

In view of this conclusion, the FTT noted that it did not need to deal with HMRC’s alternative argument, but (helpfully) it did so fairly briefly. The FTT held that section 1290 would not have applied to prevent a deduction in the relevant periods.

We set out the relevant legislation and discuss the FTT’s decision below.

The Appellants were granted permission to appeal the FTT’s decision relating to section 54 on limited grounds by the Upper Tribunal following an oral hearing after permission had been refused on the papers. Judge Ramshaw refused permission to appeal on four grounds, which were Edwards v Bairstow (Footnote: ²) challenges to findings of fact or inferences of fact made by the FTT in the course of its decision. She concluded that she was “just persuaded” that the two remaining grounds were arguable, and granted permission for them. In summary, those two grounds were expressed by the Appellants as follows:

In their Respondents’ Notice to the Appellants’ notice of appeal, HMRC sought permission to submit that the FTT erred in law in concluding that deductions were not disallowed by section 1290 CTA 2009. The Appellants objected to certain of the points which HMRC sought to raise in that respect. The Upper Tribunal granted HMRC the permission which they had sought.

Therefore, we must determine whether the Appellants succeed in their appeal against the FTT’s decision regarding section 54 on either or both of the grounds for which they have permission, and, if so, whether HMRC succeed in their appeal against the FTT’s decision regarding section 1290.

We have considered the Appellants’ arguments set out in Mr Thornhill’s skeleton argument and his oral submissions. As will become apparent, there was disagreement between the parties as to the scope of the permission to appeal granted to the Appellants, and, in relation to the apportionment argument discussed below, it was clear that no permission has been granted.

Mr Thornhill’s submissions in relation to section 54(1) as set out in his skeleton argument all relate, to a greater or lesser degree, to the decision in Scotts Atlantic (in which Mr Thornhill acted for the taxpayer). We consider those submissions in turn.

First, Mr Thornhill stated that “the decision of the FTT is substantially based on the UT decision in Scotts Atlantic”, and that was an error because the facts in this appeal were far removed from those in Scotts Atlantic.

We agree that the facts in this appeal are different, but that is nothing to the point. It is clear that the FTT referred to the passages in Scotts Atlantic which it set out in the Decision ([50]-[55] of Scotts Atlantic) not as part of an exercise comparing the facts in that case with those in this appeal, but simply as a helpful summary of the leading authorities on the “wholly and exclusively” test. Indeed, the FTT recorded at FTT[80] that the parties agreedthat the test was as set out in those passages. At FTT[80]-[81] the FTT stated as follows:

It is no surprise that before the FTT the parties agreed that the passages above from Scotts Atlantic set out the correct test, as the principles which they summarise are well-established, and based on high authority. Nor do we find any error of law or misdirection in the statements at FTT[81] regarding the application of the stated principles to the facts in this appeal.

So, the assertion that it is necessary to compare the facts in this case with those in Scotts Atlantic is fundamentally misconceived, because the FTT did not compare, rely on or even refer to the factual matrix in Scotts Atlantic, but rather adopted the Upper Tribunal’s uncontroversial summary of the principles regarding the “wholly and exclusively” test found in cases such as Mallalieu and Vodafone, and then applied those principles to the facts in this appeal. Particularly given that the parties had agreed the relevance and accuracy of that summary, that approach was unimpeachable. Nor do we accept Mr Thornhill’s description of the FTT having erred by considering the wholly and exclusively issue through the “incorrect prism of Scotts Atlantic”.

The second point made by Mr Thornhill was that in Scotts Atlantic it was found at [67] that the taxpayer had an “all-pervading object” of reducing its corporation tax liability by whatever means possible, and the FTT in this case erred because it should have considered whether there was a similar all-pervading purpose in this case.

We have no hesitation in rejecting this argument. In the first place, the finding referred to at [67] of Scotts Atlantic was actually a finding made by the FTT in that case, which was then the subject of some criticism by the Upper Tribunal in the paragraphs which followed as having the potential to be an unwarranted gloss on the statutory language. Secondly, the FTT in this case would have erred in law in directing itself to determine whether there was an all-pervading purpose of reducing tax (whatever that phrase might mean) because that is not the inquiry required by the wording of section 54. Thirdly, in any event the FTT found that the primary purpose of the Appellants in entering into the arrangements was to reduce their liability to tax without incurring actual expenditure: FTT[99]. Fourthly, given the fact-sensitive nature of the enquiry, the FTT was right not to embark on a comparison of the facts in other cases.

Third, said Mr Thornhill, the FTT erred by confusing the object or purpose of making the provision with the chosen (tax-efficient) effect of achieving that object. We do not accept that assertion. The FTT was well aware of this distinction. It was referred to several times in the passage from Scotts Atlantic set out above, and the FTT reminded itself of the distinction at FTT[81]. Its reasoning and conclusion show that it did not confuse object and effect.

Fourth, said Mr Thornhill, the FTT was influenced in its conclusion by a number of irrelevant factors. These included the failure of the Appellants to take pensions advice; the similarity of the conclusions reached by the two companies; the calculation of the provisions by reference to a percentage of profits; the fact that the arrangements were brought to the notice of the Appellants as a tax saving scheme, and the lack of commerciality in the arrangements.

We raised with Mr Thornhill the question of whether this argument fell within the grounds of appeal for which permission had been granted, given that Judge Ramshaw had explicitly refused permission for the various Edwards v Bairstow grounds. Mr Thornhill argued that on a proper construction the grounds for which permission was granted in effect incorporated the Edwards v Bairstow challenges by reference. We think it most likely that Judge Ramshaw did not intend to give permission for these challenges, but we have considered them as we can deal with them briefly.

An appeal to this tribunal lies only on a point of law: section 11(1) of the Tribunals, Courts and Enforcement Act 2007. While there cannot be an appeal on a pure question of fact which is decided by the FTT, the FTT may arrive at a finding of fact in a way which discloses an error of law. That is clear from Edwards v Bairstow, in which Viscount Simonds referred to making a finding without any evidence or upon a view of the facts which could not be reasonably entertained, and Lord Radcliffe described as errors of law cases where there was no evidence to support a finding, or where the evidence contradicted the finding or where the only reasonable conclusion contradicted the finding. Lord Diplock has described this ground of challenge as “irrationality” (Footnote: ³). In the well-known words of Evans LJ in Georgiou vCustoms and Excise Commissioners [1996] STC 463, at 476:

The argument in this case is an instance of a roving selection of evidence. None of the factors referred to was irrelevant to the FTT’s enquiry into the taxpayer’s objects. The weight to be given to those factors was a matter for the FTT. The Appellants have fallen a long way short of demonstrating, as required, that the FTT was not entitled to make the finding which it did on the basis of all the relevant evidence. In particular, in reaching its conclusion as to the Appellants’ objects, the FTT set out in detail at FTT[95]-[98] the evidence and findings which it had taken into account. On the basis of those facts, the decision reached by the FTT was plainly one which was available to it.

Finally, Mr Thornhill made the following arguments in support of the submission that the FTT erred because securing a tax advantage is not a separate “purpose” in relation to section 54:

The first argument would be relevant if this were an appeal against the decision in Scotts Atlantic, but it is not. As we have explained, the FTT did not rely on or refer to either the facts or thedecision reached in that case.

In Hoey, various issues arose relating to the “transfer of assets abroad” legislation (Footnote: ⁴). In assessing the quantum of relevant income potentially liable to tax under that legislation, it was necessary to determine whether certain sums paid by employing companies to various employee benefit trusts were paid wholly and exclusively for the purposes of the paying company’s trade, to the extent that they were referable to services provided by Mr Hoey. There was no such issue as to payments of salary to Mr Hoey: Hoey at [188]. It was also necessary to determine whether the paying companies were carrying on a genuine trade with a view to profit.

The Court of Appeal dealt with these two issues at [188]-[200] in a unanimous decision. The Court dealt first with HMRC’s argument that the companies were not trading because they were part of a tax avoidance scheme. It rejected that argument at [193], on the bases that (1) there was no evidence that the paying companies were engaged in any tax avoidance activity of their own and (2) HMRC had not suggested that the transactions entered into by the employers were “so affected or inspired by fiscal considerations that the shape and character of the transaction is no longer that of a trading transaction”, quoting Lord Morris in FA & ABLtd v Lupton [1972] AC 634 at 647 and citing the decision of the Court of Appeal in IngeniousGames LLP v HMRC [2021] EWCA Civ 1180 at [98] (“Ingenious Games CA”). Further, the Court noted that the premise upon which the “wholly and exclusively” issue arose was that the employers were carrying on a genuine trade for tax purposes.

In a passage heavily relied on by Mr Thornhill, the Court then said this, at [194]:

The Court then considered various decisions in which payments were held to be non-deductible because, on the facts, they were found to have more than one purpose. It rejected the analogy suggested by HMRC with the position in one of those cases, MacKinlay, holding that in making the payments to the EBT both the object and purpose of the companies was the same as in paying Mr Hoey salary, stating as follows at [198]:

Mr Thornhill said that in light of [194] of Hoey, Scotts Atlantic must now be regarded as wrongly decided. At the risk of repeating ourselves, that is not the issue in this appeal. However, in his oral submissions, Mr Thornhill developed this point to make an argument which in our view is relevant. This was that the statements in Hoey set out above mark a significant difference in the approach to be taken to the “wholly and exclusively” issue in any situation where the non-trading purpose alleged by HMRC is the obtaining of a tax benefit.

When properly understood and looked at in context, we do not consider that any of the statements made by the Court of Appeal in Hoey are inconsistent with the earlier leading authorities on the meaning of “wholly and exclusively”, such as Mallalieu, Vodafone and MacKinlay. We do not consider that they support the proposition put forward by Mr Thornhill that a duality of purpose, such as to prevent deductibility under section 54, cannot arise by reference to a purpose of avoiding or reducing tax. Nor do they support the proposition that the payment of remuneration will always satisfy the wholly and exclusively test, though, as we discuss below, it will normally do so.

If the Court of Appeal had intended to cast doubt on or qualify any of the leading authorities on the deductibility of payments it would have said so. To the contrary, at [170] the Court set out the main principles applicable to the wholly and exclusively test, which it described as agreed between the parties, by reference to the “convenient and authoritative summary” of Millet J in Vodafone. That summary itself described as the leading modern cases on the wholly and exclusively test Mallalieu and MacKinlay. The Court later referred to and relied on the leading authorities in its discussion of the issue. Therefore, it is clear in our view that no doubt was cast, or intended to be cast, on those authorities by the Court of Appeal.

As to whether remuneration will normally be allowable, we note that the Court does state at [172] that “where the remuneration paid to an employee is reasonable in amount, and the services in question were performed for the purposes of the employer’s trade, it is usually difficult to envisage circumstances in which deduction of the expenditure will not be allowable”. We respectfully agree. However, it is implicit in this statement that not every payment of remuneration is deductible. The statement at [172] of Hoey directly follows this important comment on Millet J’s principles, at [171], (emphasis added to original):

Certain of the comments at [194] on which the greatest reliance was placed by Mr Thornhill follow on from the Court of Appeal’s comments on the separate argument by HMRC, rejected at [193], that a fiscal motive can prevent the existence of what would otherwise be a trade. That is clear from the fact that it refers back to [193], by beginning with the word “[F]urthermore”, and by the final sentence of [194], which refers to the significance of a fiscal purpose to the objective question of whether there is a trade. They provide a context to the statements in [194] relating to deductibility, including the rejection by the Court of “a general principle that the existence of a tax avoidance motive which is more than purely incidental must give rise to a duality of purpose which means that the wholly and exclusively rule cannot be satisfied”. However, it cannot be taken to mean that a purpose which consists of some form of tax advantage is necessarily irrelevant in applying section 54. That would be inconsistent with the summary of the applicable principles set out at [170], and directly contradictory to the example given at [171] of a disqualifying object of artificially reducing taxable profit.

It seems to us that the point being made at [194] of Hoey, with which we respectfully agree, is that payments of remuneration will be very likely to be deductible, because in most cases the tax effect of the payment is an effect and not a purpose. The mere fact of choosing a tax-effective means of paying remuneration does not give rise to a duality of purpose. As stated at [55] of Scotts Atlantic:

What the Court of Appeal is saying at [194], it seems to us, is that just as a fiscal motive does not denature a trade (unless it is so powerful that it denatures the activity), a fiscal motive does not normally prevent a payment of remuneration from being deductible. However, in this case the facts found by the FTT supported a conclusion that this was not a normal case, but a variation of the example referred to at [171] of Hoey of a payment being made with the object of artificially reducing the employer’s taxable profit.

Mr Thornhill’s broad proposition that securing a tax advantage can never be a separate purpose in relation to section 54 would mean that a number of cases in which it has been held that the existence of a non-incidental purpose related to tax prevented an expense from being incurred wholly and exclusively for the purposes of a trade were wrongly decided. For example, the Upper Tribunal’s decision in Ingenious Games LLP v HMRC [2019] UKUT 0226 (TCC) on this issue (Footnote: ⁵) would be wrong, even though permission to appeal on that point was refused (Footnote: ⁶).

We reject Mr Thornhill’s proposition. The inquiry mandated by the wording of section 54 is quite clear, and there is no warrant or rationale for excluding a non-trading purpose simply because it relates to tax. Nor does that position require that the non-trading purpose is found to be “tax avoidance” as contrasted to some other form of tax saving. The safeguard for a taxpayer lies in the necessity for the fact-finding tribunal or court to distinguish purpose and effect, and to distinguish between the object of the expenditure and the means chosen to achieve it. Both of these points are dealt with explicitly in the summary in Scotts Atlantic (to which the FTT referred) of the relevant principles to be drawn from the leading authorities. We agree with Mr Thornhill that in relation to a tax purpose, carrying out that exercise may be difficult in practice, but the decision in Hoey does not cast doubt on the position in law.

In this case, as we have noted, the FTT found that the Appellants’ primary purpose was to reduce tax without incurring actual expenditure. We think it would have been more accurate for the FTT to have referred to the incurring of actual expenditure in the accounting period in which the deduction arose for tax purposes, since in A D Bly’s case it did incur some of the expenditure, albeit in subsequent accounting periods. Put another way, the tax advantage was at the least a timing advantage, and potentially a permanent advantage to the extent that the promised payments were not in due course made.

In oral submissions, Mr Thornhill sought to argue that, if we did not accept the two grounds for which permission has been given, then in the alternative a proportion of the provisions made by the Appellants was a deductible expense by virtue of section 54(2) CTA 2009. This was not a ground of appeal which was raised before the FTT, and no permission to advance it in this appeal has been sought from either the FTT or Upper Tribunal.

In deciding whether to give permission for this argument to be raised, we have taken into account the principles helpfully summarised by the Court of Appeal in Notting Hill Finance Limited v Sheikh [2019] EWCA Civ 1337. Snowden J, who gave the leading judgment, stated as follows, so far as relevant in this case:

Where an expense would otherwise fall outside section 54(1), section 54(2) permits a deduction for “any identifiable part or identifiable proportion of the expense which is incurred wholly and exclusively for the purposes of the trade”. The reference to an identifiable part of the expenditure (or in this case, the provision) clearly requires, and indeed turns on, a factual enquiry. Applying the principles summarised above, and taking into account the overriding objective, we are clear that we should not allow this new point to be raised in this appeal. The time and place to have raised it, and to have considered the relevant evidence from both parties, was in the hearing before the FTT.

The FTT found on the facts that “the Appellants’ primary purpose in entering into the Unfunded Pension Agreements was to reduce their liability to pay tax without incurring any actual expenditure”, so that the relevant liabilities were not incurred wholly and exclusively for the purposes of the Appellants’ trades: FTT[99]. We consider that the FTT correctly directed itself as to the relevant legal principles, and, subject to the point we make above regarding the timing of the expenditure, for the reasons we set out above, reached a conclusion which was available to it on the facts.

The Appellants’ appeal is dismissed.

With the permission of the Upper Tribunal, by way of Respondent’s Notice HMRC argue that the FTT erred in law in concluding that deductions would not have been disallowed by section 1290 CTA 2009 if they had been otherwise permitted by section 54.

In view of our decision to dismiss the Appellants’ appeal there is no need for us to determine this issue. However, since we heard detailed argument on it we will set out our views.

Section 1290 CTA 2009 provides as follows:

Section 1290 must be read with section 1291, which relevantly provides:

The FTT discussed the decisions of the FTT in NCL Investments Ltd and another vHMRC [2017] 495 (TC) (“NCL FTT”) and the Court of Appeal in that case ([2020] EWCA Civ 663) (“NCL CA”). On the basis of NCL CA the FTT rejected HMRC’s arguments, deciding that the creation of an unfunded contractual entitlement to a pension did not give rise to an “employee benefit contribution” as defined. Therefore, held the FTT, section 1290 would not have applied to prevent a deduction if such a deduction had been permitted under section 54.

Following the Decision, the judgment of the Supreme Court in HMRC v NCLInvestments Ltd and another [2022] UKSC 9 (“NCL SC”) was released. We have taken NCL SC into account in reaching our decision.

Ms Murray submitted that, contrary to the FTT’s decision, the deductions claimed by the Appellants were in respect of “employee benefit contributions” made by them, in the form of the Appellants’ promises under the Unfunded Pension Agreements to pay income in the future to their directors. The making of those promises were acts as a result of which the directors held property, namely their contractual rights, under an arrangement for the benefit of the directors. Ms Murray argued that this analysis was wholly consistent with NCL SC. She said that the FTT’s reliance, at FTT[111], on the fact that the creation of an unfunded pension entitlement is not a “payment or transfer” derives from the suggestion in NCL CA that sections 1290 and 1291 envisage a payment or transfer being made, and that approach was not endorsed in NCL SC. Further, said Ms Murray, changes made by the Finance Act 2011 make it clear that section 1290 is intended to apply to a scheme for the payment of pension income.

One of the issues in NCL was whether section 1290 applied to prevent or defer a deduction which would otherwise be available in respect of accounting debits resulting from the grant of employee share options. The Supreme Court in NCL SC agreed with the FTT and Upper Tribunal that the section would not apply because the grant of the options did not give rise to an “employee benefit contribution” for the purposes of section 1291. At [70] the Supreme Court said this:

As noted in NCL FTT (Footnote: ⁷), section 1291 does not define “employee benefit contributions”, but rather sets out the circumstances in which an employee benefit contribution is made as a result of “any act or omission”.

If we had needed to decide the issue, we would have agreed with the FTT that the arrangements in this case do not give rise to employee benefit contributions for the purpose of section 1291, with the result that section 1290 would not prevent a deduction if one had otherwise been available.

As the Court of Appeal observed in NCL CA, a literal reading of section 1291(1) would be capable of including the grant of an employee share option, but such a reading would ignore the context created by section 1290: NCL CA at [77]. As the Court of Appeal said at [77]-[78]:

Ms Murray criticised the FTT in this case for agreeing with the statement by the Court of Appeal that the statutory language suggests a payment or transfer, saying that the Supreme Court did not endorse that statement. However, at [19] of its decision the Supreme Court referred to all of HMRC’s arguments, including that relating to section 1290, noting that the courts below had agreed for the most part with the conclusions reached by the FTT in that case, and then stated:

In the section of the decision dealing specifically with section 1290 (NCL SC [58]-[73]), the Supreme Court expressly referred to [77]-[78] of NCL CA. Whilst we agree that the Supreme Court did not specifically endorse those passages, it certainly said nothing to indicate that this aspect of the Court of Appeal’s reasoning fell outside the general endorsement at NCL SC [19].

In our view, there are other respects in which the wording of section 1291, construed in context, is inapt to describe the arrangements in this appeal. In isolation, the reference in the definition of “employee benefit scheme” in section 1291(2) to “a trust, scheme or other arrangement” might be wide enough to encompass the contractual arrangements in this appeal. However, construing sections 1290 and 1291 together in their entirety, we think it likely that the reference to “other arrangement” is to be construed sui generis to refer to something akin to a trust or similar arrangement. The latter construction finds support at NCL SC [72].

Finally, we do not consider that pursuant to the arrangements “property is held, or may be used, under an employee benefit scheme”. The only “property” suggested by Ms Murray was the contractual promise made by the Appellants. In our view such a promise is not “held” by a director to whom the promise is made “under” the employee benefit scheme (assuming for this purpose that there is such a scheme) for similar reasons to those of the Supreme Court in relation to the options in NCL SC. Rather, it is simply a term of the contractual arrangements and is not properly described as property “held…under” the arrangements. This follows from the other reasons, described above, why we consider that section 1290 does not apply on the facts of this case.

Ms Murray argued that the changes to the definition of “employer-financed retirement benefits scheme” in section 1296 CTA 2009 which were introduced by the Finance Act 2011 show that section 1290 is intended to apply to a scheme for the payment of pension income. However, all those changes do is to carve out the exclusion of pension income from the definition; that tells us nothing about whether the particular arrangements in this case fall within section 1290.

If it had been necessary in disposing of this appeal we would have dismissed HMRC’s challenge to the FTT’s conclusion on this issue.

The Appellants’ appeal is dismissed.