Incidental consequence

The taxpayer companies made indirect contributions to employment benefit trusts the funds of which were later loaned to shareholders and employees.

The companies claimed a corporation tax deduction in respect of the payments. HMRC refused the claim saying the sums were in effect the distribution of profits not employee benefit contributions (FA 2003 Sch 24 para 1).

The First-tier Tribunal (FTT) dismissed the taxpayers’ appeal because their intention was to obtain a tax deduction that would not ordinarily be expected – and that was the opposite of what parliament intended. The contributions resulted in a duality of purpose which was fatal to claim for the deductions.

The Upper Tribunal accepted that the deduction claimed was in respect of the amount of the value shifting but this was only one step in a larger arrangement which included the making of an employee benefit...