On 5 July 2017, the Supreme Court10 unanimously held, in what has become known as the “big tax case” that payments by an employer to an employee benefit trust (EBT) were ‘redirected’ earnings properly subject to tax and NICs under the PAYE system.
The facts of the case, briefly summarised in our earlier update here, pre-dated the introduction of the disguised remuneration regime within Part 7A of ITEPA 2003, which was introduced (at least in the view of HMRC) to put beyond doubt that these types of arrangements do not have the intended tax effect.
The Supreme Court upheld the Court of Session’s decision that the payments by the employer to the EBT were redirected emoluments of employment. In the Court’s view, neither the applicable primary nor secondary legislation contained any requirement that the payments actually be received by the employee. Rather, the Court focused on the source of the payments and found that the payments were remuneration for the services provided by the employees, and that that was all that was required for a tax charge to arise.
The Court distinguished the facts of the case from circumstances where a tax charge did not arise unless and until a stated contingency occurred. In the words of the Court “the footballer was able to gain access to the cash when he wanted it…the scheme was designed to give each footballer access without delay to the money paid into the Principal Trust, if he so wished”.
The decision can be viewed here.