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The Supreme Court today gave judgment in the long-running Grays Timber Products Limited v HMRC, which was the first tax case concerning employee share awards under the rules introduced in 2003.
The appeal of the taxpayer – heard on 14 and 15 December last year – was refused, although the victorious Revenue came under criticism from the judges, as did the language of the legislation concerned.
The long-running case had its origins in November 1999, when Alexander Gibson was appointed as MD of Grays Timber, a wholly-owned subsidiary of Grays Group Ltd (GGL), of which Mr Gibson became a director.
Under a shareholders’ agreement, he paid £50,000 to take up ordinary shares amounting to about 6% of the issued ordinary capital in GGL, and he was entitled under the terms of a subscription agreement to receive approximately 25% of sale proceeds, which was significantly more per share than any other shareholder.
GGL’s entire share capital was sold to an outside party, Jewson Ltd, in November 2003, and Mr Gibson was paid 25% of the proceeds.
HMRC determined that the disposal of the shares was for a consideration that exceeded ‘the market value of the employment-related securities at the time of the disposal’ within the meaning of ITEPA 2003 s 446Y. (Further background can be read here.)
The case was initially heard by a single Special Commissioner and then by the Scottish Inner House of the Court of Session.
It was the first tax case to reach the Supreme Court, where Lord Justice Walker today described the Revenue’s 2003 guidance on employment-related securities as being on the department’s own case ‘clearly wrong’.
He also described the amendments as being ‘in anything but plain English’, and said he was ‘left in real doubt as to whether Parliament has in Part 7 of ITEPA 2003 enacted a scheme which draws a coherent and consistent distinction between intrinsic and extrinsic rights attaching to employment related securities’.
Michael Sherry, counsel for the taxpayer said it was ‘regrettable that HMRC argued this case contrary to their own clear guidance’ and he was also disappointed by the fact that ‘the Supreme Court did not find that guidance authoritative’.
