Payment to director from employee benefit trust was earnings

In November 2010 the taxpayer – a company - made a payment of £800 000 to its employee benefit trust. The trust then loaned the whole sum to MC who was director and shareholder of the company. The loan was interest-free and repayable on demand after five years. MC used the loan to buy shares in the taxpayer from his wife who then lent the proceeds to the taxpayer.

HMRC made determinations under Income Tax (PAYE) Regulations 2003 reg 80 charging PAYE and class 1 National Insurance on the payment by the company to the EBT. The taxpayer appealed.

The First-tier Tribunal said the focus of its enquiry was to decide why the company made the £800 000 payment to the EBT. If it was intended to be a reward for services provided by MC to the company the payment was earnings and liable to...