Inner House – The Court analysed the nature of the rights which a tax avoidance scheme, involving an offshore employee benefits trust and family benefit trusts and shares in Isle of Man companies, had conferred on the relevant employees. The employing company had accepted that the sums which it had paid though the employee benefits trust to an Isle of Man company were taxable as emoluments and that the scheme was ineffective to reduce the value of those emoluments. The question was whether the employing company was liable to pay the tax under the PAYE system or the benefited employees individually should pay. The issue, to which the gloss was unexceptionably applied, was whether the money in an Isle of Man company, whose shares the employee had acquired through the scheme, was to be treated as being received by the employee so that there was ‘payment’ within the meaning of section 203 of ICTA and the 1993 Regulations.
Held: Lord Drummond Young said: ‘In considering what amounts to payment for the purposes of the PAYE legislation, it is important in my opinion to bear in mind that money is a medium of exchange. In practical terms, therefore, the crucial question is whether funds have been placed in a position where as a practical matter they may be spent by the employee as he wishes; it is at that point that the employee can be said to obtain the benefit of those funds. If the PAYE legislation is construed purposively it is in my view obvious that it is such a benefit that is to be taxed. For this purpose it is not appropriate to deconstruct the precise legal nature of the employee’s rights, drawing fine distinctions according to the methods that he must adopt in order to use the funds for his benefit. The fact that the employee has practical control over the disposal of the funds is sufficient to constitute a payment for the purposes of the legislation.’
Judges:
Lord Drummond Young, Lord President (Lord Gill) and Lord Glennie
Citations:
[2013] ScotCS CSIH – 84, 2014 SC 271, 2013 GWD 40-773, [2013] BTC 726, [2014] STC 438, 2014 SLT 54
Links:
Jurisdiction:
Scotland
Citing:
At FTTTx – Aberdeen Asset Management Plc v Revenue and Customs FTTTx 29-Oct-2010
Income Tax; emoluments; money’s worth; transfer of shares; readily convertible asset; Ramsay approach; tax avoidance scheme; Employee Benefit Trust; Discounted Options Scheme for employees in financial services industry; establishment of employee . .
At UTTC – Aberdeen Asset Management Plc v HMRC UTTC 9-Dec-2011
UTTC Income Tax; emoluments; tax avoidance scheme; transfer of shares; whether a payment -No; whether shares a readily convertible asset – Yes; Income and Corporation Taxes Act 1988 sections 1, 19, 131, 202AandB, . .
Cited by:
Cited – RFC 2012 Plc (Formerly The Rangers Football Club Plc) v Advocate General for Scotland SC 5-Jul-2017
The Court was asked 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.
Held: The . .
Lists of cited by and citing cases may be incomplete.
Income Tax
Updated: 18 August 2022; Ref: scu.517015