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Four hedge fund managers were employees and directors of the taxpayer company.
They were entitled to substantial cash bonuses which they paid using used a fixed dividend scheme in an attempt to reduce the tax liability. Shares from two companies S1 and S2 were awarded to the employees.
Before dividends could be paid HMRC announced the introduction of legislation that would prevent the use of schemes involving employment-related securities to pay bonuses.
As a result S1 and S2 were liquidated and the proceeds paid to the employees. The Revenue said the proceeds were liable to PAYE and National Insurance.
The taxpayer appealed.
The First-tier Tribunal gave a detailed decision referring to the recent Court of Appeal decision in CRC v PA Holdings Ltd [2012] STC 582 which went against the taxpayer.
The tribunal judge concluded that the amounts paid in the...
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