Facility payment is a loan

The taxpayer company set up an employee share scheme in May 2006. A member of staff who wished to buy shares entered into a facility agreement under which the firm granted a facility to provide funds to buy the shares.

The employee repaid the sum on a conversion event such as when he or she left the company.

The business’s accounts for 2007 and 2008 showed the outstanding facility amounts as “interest-free loans”. The accounts for 2009 and subsequent years described them as “facilities”.

HMRC said the taxpayer was liable to tax under TA 1988 s 419(1) on the basis the payments were loans to participators. The First-tier Tribunal dismissed the company’s appeal.

The Upper Tribunal said the staff member was obliged under the facility agreement to repay the facility amount at some point even though the date was uncertain.

The uncertainty did not prevent the...