Condition served no commercial purpose

The taxpayer was a garage construction business. It paid its director two bonuses during 2002-03. These took the form of transfers of loan notes to a trust of which the director was a beneficiary. The director would cease to be entitled to the loan notes in the event of his death within a period of 12 months following the award.

The taxpayer said the award of the loan notes fell within TA 1988 s 140A (conditional acquisition of shares) and was taxable only after the condition expired. HMRC disagreed saying the condition should be ignored for tax purposes and that tax and National Insurance were payable when the loan notes were transferred.

The First-tier Tribunal found that the purpose of the taxpayer and the director in entering the arrangements was to enable the taxpayer to account for less income tax and National Insurance on the bonuses than would...