The Upper Tier Tribunal decided that loan notes that were subject to forfeiture restrictions which did not have any commercial basis were not restricted securities for the purposes of the employment related restricted security rules in Part 7 of the Income Tax (Earnings and Pensions) Act 2003. As a result, the securities were held to fall outside a specific exemption in this regime and the undervalue on their issue was instead subject to income tax and national insurance contributions under the general (unrestricted) employment related security rules.

When reviewing whether a restriction is sufficient to make a security restricted for these purposes, the Upper Tier Tribunal confirmed that it is necessary for the restriction to have a "business or commercial purpose". This is therefore a useful reminder that artificially manufacturing restrictions on employment related securities is unlikely to give rise to beneficial tax treatment that relies on the securities being "restricted".