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 company’s appeal failed. The purposive approach to the interpretation of the general provisions of ICTA and ITEPA in relation to emoluments or earnings was not excluded by the provisions called in aid by the company. The payments were not shams.
A charge to income tax on employment income can arise when an arrangement gives a third party part or all of the employee’s remuneration.
‘three aspects of statutory interpretation are important in determining this appeal. First, the tax code is not a seamless garment. As a result provisions imposing specific tax charges do not necessarily militate against the existence of a more general charge to tax which may have priority over and supersede or qualify the specific charge. I return to this point towards the end of this judgment (paras 68-72 below). Secondly, it is necessary to pay close attention to the statutory wording and not be distracted by judicial glosses which have enabled the courts properly to apply the statutory words in other factual contexts. Thirdly, the courts must now adopt a purposive approach to the interpretation of the taxing provisions and identify and analyse the relevant facts accordingly.’
‘In summary, (i) income tax on emoluments or earnings is due on money paid as a reward or remuneration for the exertions of the employee; (ii) focusing on the statutory wording, neither section 131 of ICTA nor section 62(2)(a) or (c) of ITEPA, nor the other provisions of ITEPA which I have quoted (except section 62(2)(b)), provide that the employee himself or herself must receive the remuneration; (iii) in this context the references to making a relevant payment ‘to an employee’ or ‘other payee’ in the PAYE Regulations fall to be construed as payment either to the employee or to the person to whom the payment is made with the agreement or acquiescence of the employee or as arranged by the employee, for example by assignation or assignment; (iv) the specific statutory rule governing gratuities, profits and incidental benefits in section 62(2)(b) of ITEPA applies only to such benefits; (v) the cases, to which I have referred above, other than Hadlee, do not address the question of the taxability of remuneration paid to a third party; (vi) Hadlee supports the view which I have reached; and (vii) the special commissioners in Sempra Metals (and in Dextra) were presented with arguments that misapplied the gloss in Garforth and erred in adopting the gloss as a principle so as to exclude the payment of emoluments to a third party.’
Lord Neuberger, President, Lady Hale, Deputy President, Lord Reed, Lord Carnwath, Lord Hodge
 UKSC 45,  4 All ER 654, 2017] BTC 22, 2017 GWD 21-357,  STI 1610, 2017 SCLR 517,  STC 1556, 2017 SLT 799,  WLR(D) 450,  1 WLR 2767, UKSC 2016/0073
Bailii, WLRD, SC, SC Summary, SC Summary Video, SC 20170315am Video, SC 20170315pm Video, SC 20170316am Video, SC 20170316pm Video
Income and Corporation Taxes Act 1988, Income Tax (Earnings and Pensions) Act 2003 62
At FTTTx – Murray Group Holdings and Others v Revenue and Customs FTTTx 29-Oct-2012
FTTTx Income Tax and NIC – Schedule E – emoluments/earnings – tax avoidance scheme – Remuneration Trust – employees’ individual sub-trusts – ‘protectors’ – (1) whether payments by employer into trust represent . .
AT UTTC – Revenue and Customs v Murray Group Holdings Ltd and Others UTTC 8-Jul-2014
UTTC Income Tax and NIC – emoluments/earnings – tax avoidance scheme – remuneration trust – employees’ individual sub-trusts – ‘protectors’ – (1) whether payments into sub-trusts were emoluments/earnings subject . .
Appeal from – The Advocate General for Scotland v A Decision of The Upper Tribunal, Re Assessments To Tax Made On Murray Group Holdings Ltd and Others SCS 4-Nov-2015
Second Division Inner House) The AG appealed from a finding that a tax avoidance was not a sham. TH AG brought a new argument, that the payment of the sums to the remuneration trust involved a redirection of the employee’s earnings and accordingly . .
Cited – Hochstrasser (HM Inspector of Taxes) v Mayes ; Jennings v Kinder (HM Inspector of Taxes) HL 20-Nov-1959
A company operated a housing scheme for married employees who made transferred from one part of a country to another. Under the scheme an employee might be offered a loan to assist in the purchase of a house and, provided the house was maintained in . .
Cited – Laidler v Perry HL 8-Apr-1965
HL Income Tax, Schedule E – Christmas gift voucher – Whether assessable – Income Tax Act, 1952 (15 and 16 Geo. VI and 1 Eliz. II, c. 10), Section 156; Finance Act, 1956 (4 and 5 Eliz. II, c. 54), Second Schedule, . .
Cited – Brumby (Inspector of Taxes) v Milner HL 27-Oct-1976
A company had a profit-sharing scheme for its employees. When it decided to merge with a larger company, the trustees concluded that the scheme was no longer viable. They wound it up and distributed the funds among the employees.
Held: The . .
Cited – Chinn v Hochstrasser (Inspector of Taxes) HL 11-Dec-1980
The House considered the meaning of the word ‘bounty’ in an income tax context, where it had been used by the courts: ‘My Lords, I would venture to point out that the word ‘bounty’ appears nowhere in the statute. It is a judicial gloss upon the . .
Cited – Barclays Mercantile Business Finance Ltd v Mawson (HM Inspector of Taxes) HL 25-Nov-2004
The company had paid substantial sums out in establishing a gas pipeline, and claimed those sums against its tax as capital allowances. The transaction involved a sale and leaseback arrangement which the special commissioners had found to be a . .
Cited – Tennant v Smith (Surveyor of Taxes) HL 14-Mar-1892
A Montrose bank manager had been given free accommodation in a bank house which he was required to occupy.
Held: The Inland Revenue could not charge income tax on the value of the accommodation because the employee could not convert the . .
Cited – Edwards (HM Inspector of Taxes) v Roberts CA 3-Jul-1935
The Respondent was employed by a company under a service agreement dated August, 1921, which provided, inter alia, that, in addition to an annual salary, he should have an interest in a ‘ conditional fund ‘, which was to be created by the company by . .
Cited – Abbott v Philbin (Inspector of Taxes) HL 21-Jun-1960
A company’s senior employees had been given an option to subscribe for its shares at the then current market price, the option being exercisable at any time within the next ten years. The employees were thus incentivised to increase the company’s . .
Cited – Heaton v Bell HL 1970
The Revenue sought to tax the benefit of a car loan scheme and the issue was whether the emoluments of a participating employee fell to be assessed under Schedule E gross without reference to the weekly sum deducted by the employer for providing, . .
Cited – W T Ramsay Ltd v Inland Revenue Commissioners HL 12-Mar-1981
The taxpayers used schemes to create allowable losses, and now appealed assessment to tax. The schemes involved a series of transactions none of which were a sham, but which had the effect of cancelling each other out.
Held: If the true nature . .
Cited – Barclays Mercantile Business Finance Ltd v Mawson, HM Inspector of Taxes CA 13-Dec-2002
The taxpayer entered into a sale and leaseback arrangement in respect of a gas pipeline, and sought to set off the costs as a capital allowance.
Held: The company’s appeal succeeded: ‘There is nothing in the statute to suggest that ‘up-front . .
Cited – Hadlee and Another v Commissioner of Inland Revenue PC 1-Mar-1993
(New Zealand) Section 38(2) of the Income Tax Act 1976 of New Zealand provided that income tax was payable by every person on income derived by him during the year for which tax was payable. A partner in an accountancy firm assigned a proportion of . .
Cited – Revenue and Customs v Forde and McHugh Ltd SC 26-Feb-2014
The Court heard a number of appeals concerned with the interpretation of the phrase in section 6(1) of the Social Security Contributions and Benefits Act 1992, ‘[w]here in any tax week earnings are paid to or for the benefit of an earner’ It was . .
Approved – Garforth (Inspector of Taxes) v Newsmith Stainless Ltd (Chancery Division) ChD 21-Nov-1978
In the tax year 1974/75 a taxpayer company voted to award bonuses to its two directors and controlling shareholders and credited the sums to accounts with the company from which the directors were free to draw. The directors did not draw on those . .
Incorrect – Sempra Metals Ltd v Revenue and Customs SCIT 7-Jul-2008
CORPORATION TAX – computation of profits – deductions – payments by Appellant before 2001 to employee benefit trust and after 2002 to family benefit trust – whether wholly and exclusively expended for the purposes of the Appellant’s trade – yes – . .
Cited – Aberdeen Asset Management Plc v HM Revenue and Customs SCS 23-Oct-2013
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 . .
Cited – Dextra Accessories Ltd and others v Inspector of Taxes SCIT 25-Jul-2002
SXIT EMPLOYEE BENEFIT TRUST – whether deduction of contributions postponed until taxable as emoluments under FA 1989 s.43(11) – no – whether sub-funds in favour of directors who controlled the company taxable as . .
Cited – HM Inspector of Taxes v Dextra Accessories Ltd HL 7-Jul-2005
The taxpayer companies had paid funds into a trust for employees. They sought to set off the payments against their liability to corporation tax. The revenue argued that they were deductible only in the year in which they were paid to the employees. . .
Cited – Blakiston v Cooper (Surveyor of Taxes) HL 10-Dec-1908
Whether or not a sum given by parishioners and others to the vicar at Easter, 1905, is assessable to income tax as being ‘profits accruing’ to him ‘by reason of such office.’
Sums of money collected in a parish by voluntary subscription in . .
Cited – Hartland v Diggines (HM Inspector of Taxes) HL 22-Jan-1926
Income Tax, Schedule E-Income Tax on employees’ Hilaries voluntarily paid by company – Income Tax Act, 1842 (5 and 6 Viet., c. 35), Section 146, Schedule E-Income Tax Act, 1853 (16 and 17 Viet., c. 34), Section 2, Schedule E. . .
Cited – Commissioners of Inland Revenue v The Scottish Provident Institution OHCS 3-Jul-2003
The parties arranged for the issue of cross options for the purchase of gilts, which would prove when exercised to be very tax effective when a new system of taxing such transaction was in place, and planned losses could be set off against taxable . .
Cited – Inland Revenue Commissioners v Scottish Provident Institution HL 25-Nov-2004
The parties anticipated a change in the system for taxing gains on options to buy or sell bonds and government securities. An option would be purchased before the change and exercised after the change to create losses which could be set off against . .
Approved – Sloane Robinson Investment Services Ltd v Revenue and Customs FTTTx 16-Jul-2012
FTTTx Employees’ bonus payments – whether entitlement to cash or to shares – s 18 and 686 and Part 7 of ITEPA 2003 – s 42 of Companies Act 1985 – tax avoidance scheme – purposive interpretation of statutes – . .
These lists may be incomplete.
Updated: 24 February 2021; Ref: scu.588741