Payments with double nature

PA Holdings was an employee-owned service company which paid its employees median salaries and bonuses from profits by individualised annual awards.

For the years up to 1999 the company paid a lot of its profits into an employee trust. In 1999 it introduced a restricted share plan whereby bonuses paid to employees were paid via a UK resident company.

In this way they were paid as dividends of a UK resident company and taxed as dividends.

HMRC issued regulation 80 determinations for income tax on the payments claiming that they were emoluments for the purposes of TA 1988 s 19 (now ITEPA 2003 s6). In addition they said that National Insurance contributions were payable. There was no allegation that the scheme was a sham.

The company appealed.

The First-tier Tribunal judges concluded that the...