Employees’ bonuses

20 February 2018

Issue: 4636 / Categories: Tax cases

Cyclops Electronics Ltd; Graceland Fixing Ltd v CRC, Upper Tribunal (Tax and Chancery Chamber), 17 January 2018

Whether loan notes were restricted securities

The taxpayers issued loan notes to employees. The terms specified that the arrangement would be forfeited in the case of the death of a recipient within a year of issue. The purpose of this provision was to ensure the loan notes were restricted securities so that under ITEPA 2003 s 423 the employees did not pay income tax and National Insurance on them.

The First-tier Tribunal referring to the Supreme Court’s judgment in UBS AG v CRC; DB Group Services (UK) Ltd v CRC [2016] STC 934 decided the loan notes were not restricted securities on the basis that the forfeiture provisions had no business or commercial purpose.

The taxpayers appealed. They said the motivation for the restriction had been to ensure that the employees would receive the loan notes in a tax-efficient manner and that its purpose was to ensure that...

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