Funding a Genuine Employee-Trust Loan Is Not “Earnings”: Limits of Rangers and the “Redirected Earnings” Doctrine
1. Introduction
In Commissioners for His Majesty's Revenue and Customs v MR Currell Ltd
[2026] EWCA Civ 445, the Court of Appeal (Lady Justice Falk, with whom Lord Justice Singh and
Lord Justice Foxton agreed) dismissed HMRC’s appeal from the Upper Tribunal (Tax and Chancery Chamber).
The case concerned whether a company’s £800,000 payment to an employee benefit trust (EBT) in November 2010
triggered PAYE income tax and NICs as “general earnings” of a director-shareholder, where the EBT immediately
on-lent the same sum to him under a genuine, secured, repayable loan.
HMRC’s core contention was that, because the payment to the EBT funded a loan granted “because of” the director’s work,
the company’s payment to the EBT (and/or the loan itself) should be characterised as taxable earnings under
section 62 Income Tax (Earnings and Pensions) Act 2003 (ITEPA). The Court of Appeal rejected that analysis,
distinguishing the Supreme Court’s disguised remuneration decision in
RFC 2012 plc (in liquidation) (formerly The Rangers Football Club plc) v Advocate General for Scotland [2017] UKSC 45
(“Rangers SC”).
The decision is particularly significant because it addresses the boundaries of “redirected earnings” reasoning under the
pre-Part 7A ITEPA regime (Part 7A having been introduced in 2011), and clarifies that a payment made to fund an
employee benefit (here, a loan) is not automatically itself “earnings” merely because the benefit was conferred
by reason of employment and the steps were “prewired”.
2. Summary of the Judgment
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The Court upheld the Upper Tribunal’s conclusion that the First-tier Tribunal made a material error of law by treating
the advance of a genuine repayable loan as “potentially within the ambit” of section 62 ITEPA depending on the reason
for its payment.
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On the facts found by the FTT, the £800,000 payment to the EBT was not “earnings”. The mere fact that it funded a loan
granted because of the director’s past work did not convert the funding payment into an emolument.
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The Court confirmed that, as a general proposition, the principal of a genuine loan is not itself taxed as earnings under section 62;
instead, tax consequences for employee loans ordinarily arise (if at all) under the benefits code (e.g. beneficial loan rules),
unless the “loan” is not truly repayable (e.g. sham or never realistically intended to be repaid).
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Rangers SC did not determine that payments funding employee loans are necessarily earnings; it decided a different point:
that remuneration can be taxable even if paid to a third party with the employee’s agreement or acquiescence.
3. Analysis
3.1 The statutory framework: earnings vs the benefits code
The Court anchored the analysis in the structure of ITEPA:
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Section 62(2) ITEPA defines “earnings” to include salary/wages/fees, and also “any gratuity or other profit or incidental benefit”
in money or money’s worth, and “anything else that constitutes an emolument of the employment”.
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For PAYE to bite, there must be (i) earnings and (ii) those earnings must be received (including where “payment is made”):
see sections 15 and 18 ITEPA, and section 686.
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Separately, the benefits code (Part 3 ITEPA) contains specific charging regimes for benefits in kind, including
employee loans (Chapter 7). In general, a low-interest loan is taxed under section 175 by reference to the
interest saving; and a release/write-off is charged by section 188.
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Section 64 ITEPA gives primacy to the earnings rules where the same benefit could fall within both codes—but that primacy
does not justify recharacterising a genuine loan principal as earnings in the first place.
A key contextual feature was timing: the steps occurred in November 2010, before the introduction of the
Part 7A ITEPA disguised remuneration rules (Finance Act 2011), which would typically tax such EBT loan arrangements.
3.2 What the FTT found—and how those findings mattered
The FTT found the transactions were “prewired”: the company’s contribution to the EBT, the trustee’s loan to the director,
the director’s purchase of shares from his spouse, and the spouse’s onward advance of the same amount back to the company
were designed so that the company would end up with the working capital.
Critically, however, the FTT also found:
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The loan was a genuine loan with a real repayment obligation, understood by the director, and he had resources to repay.
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If the company had not made the payment, it would not have paid the director £800,000 as remuneration; there was
“no evidence” it would otherwise have been paid as salary or similar.
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The trustee made the loan because of the director’s work over the years in building the business (i.e. the loan was
employment-related), but that did not entail that the company’s funding payment was itself remuneration.
3.3 Precedents cited: how they shaped (and limited) the reasoning
(a) RFC 2012 plc (in liquidation) (formerly The Rangers Football Club plc) v Advocate General for Scotland [2017] UKSC 45 (“Rangers SC”)
HMRC’s case depended heavily on analogising to Rangers SC. The Court of Appeal treated that reliance as overstated.
In Rangers SC, the dispute (as it reached the Supreme Court) was whether remuneration paid to a trust could be taxed as earnings when
the employee had no prior entitlement to receive it and did not receive it personally. Lord Hodge held there was
no general requirement that the employee must first be entitled to the sums; remuneration can be taxed when paid to a third party
where the payment is made with the employee’s agreement, acquiescence, or arrangement.
The Court of Appeal’s crucial distinction was:
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In Rangers SC, it was effectively accepted (and in any event clearly demonstrated on the facts) that the payments into the trust were
remuneration—footballers’ side letters formed part of their net pay package, and executives’ bonuses were paid as a reward for work.
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In MR Currell, the contested issue was precisely whether the company-to-EBT payment was remuneration at all. The Court held it was not.
The Court also relied on Lord Hodge’s explanation that certain benefits (including loans) fall within the regime only by
“special statutory provision” (the benefits code). That discussion supported the view that one cannot simply treat the making
of a genuine loan as a payment of earnings equal to its principal.
Degorce was cited for appellate tribunal methodology under the Tribunals, Courts and Enforcement Act 2007:
an error is “material” if it might have affected the outcome. The UT correctly applied that standard when setting aside
the FTT decision and re-making it on the established facts.
(c) Revenue and Customs Comrs v Apollo Fuels Ltd [2016] EWCA Civ 157 (“Apollo Fuels”)
The Court used Apollo Fuels as a reminder that income tax is a tax on income, and that counter-intuitive liabilities
should not be constructed without clear legislative language. This supported resisting HMRC’s attempt to tax a funding payment
merely because it enabled an employee-related benefit.
(d) Wilkins (Inspector of Taxes) v Rogerson [1961] Ch 133
The Court deployed Wilkins v Rogerson to illustrate the “non sequitur” in HMRC’s core logic. An employer paid a tailor to provide a suit
to an employee. The taxable amount was the value of what the employee got (a suit, valued second-hand), not automatically the amount the
employer paid to fund that benefit. By analogy, the employee here got a loan; that does not make the employer’s funding payment the employee’s earnings.
(e) O'Leary v McKinlay (Inspector of Taxes) [1991] STC 42 (“O'Leary”)
O'Leary was relied on to explain why the principal of a genuine loan is not itself earnings: the benefit is the use of funds
and (where relevant) the interest saving, which the benefits code taxes. The Court treated this as reflecting orthodox principle.
The Court noted that Garforth and Aberdeen concerned what counts as payment/receipt, not whether an amount is
earnings in the first place. That mattered because HMRC attempted to use “payment” concepts to bolster a mischaracterisation of the
underlying subject-matter as earnings.
(g) Other authorities referenced in the Rangers discussion
The judgment’s tour through authorities such as Tennant v Smith (Surveyor of Taxes) [1892] AC 150 and
Hadlee v Comr of Inland Revenue [1993] AC 524 (PC) served to emphasise a foundational point:
the inquiry is about the nature/source of what the employee receives and whether it is remuneration,
not simply about the identity of the payee or the mechanics by which value is routed.
3.4 Legal reasoning: why the payment to the EBT was not earnings
The Court’s reasoning can be distilled into several linked propositions.
(1) Funding ≠ emolument: the “non sequitur” problem
HMRC argued: the trustee made the loan because of the director’s work; the company paid the EBT to enable the loan; therefore the
company’s payment was for the director’s work and taxable as earnings.
The Court rejected this as a category mistake. The payment’s function (“to fund the loan”) explained why it was made, but not what it was
in tax-character terms. The statutory charge is concerned with what is properly characterised as remuneration/income of the employee.
(2) The employee “got the loan”: analyse the actual benefit conferred
On the FTT’s findings, the director received a genuine, secured loan with a real obligation to repay and an understanding that it would be repaid.
That is materially unlike a disguised-payment architecture where “loans” were expected never to be repaid and the employee effectively controlled the trust
and succession to the funds (features central to Rangers SC).
(3) Avoidance concerns do not supply the missing statutory hook
The Court treated the “tax-free cash access” rhetoric as analytically unhelpful: one cannot determine whether something is “earnings” by starting with the
supposed attractiveness of the outcome. The label “tax-free” cannot drive characterisation.
(4) A “prewired” sequence does not automatically create redirected earnings
Even if the steps were orchestrated, that did not show that the company had paid remuneration to a third party. The Court also cautioned that accepting HMRC’s
logic would create destabilising uncertainty for ordinary commercial patterns (e.g. third-party funded employee loans, intercompany funding, and director loan accounts).
3.5 Legal reasoning: why the loan principal was not earnings (HMRC Ground 3)
The Court treated HMRC’s fallback argument (that the loan itself was earnings) as generally inconsistent with the statutory scheme:
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A loan comes with a repayment obligation; the employee is not enriched by the principal in the same way as by remuneration.
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The taxable benefit (if any) typically lies in the interest advantage, charged under the benefits code (Chapter 7, Part 3 ITEPA).
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While the Court did not rule out that a “loan” could be earnings in exceptional cases (e.g. sham or never intended realistically to be repaid), that was not this case.
3.6 Impact: what the decision changes (and what it does not)
(1) Limits HMRC’s ability to “bootstrap” an earnings charge from an employment-related loan
The judgment is a clear warning against “bootstrapping”:
an employment-related loan may be a benefit arising from employment, but that does not convert a separate payment made to fund the loan into taxable earnings.
(2) Narrows the practical reach of Rangers-style arguments for pre-2011 EBT loan cases
For arrangements implemented before Part 7A ITEPA, the decision reinforces that Rangers SC does not provide a general template
for taxing any EBT-funded loan by treating the employer’s contribution as redirected remuneration. The factual ingredients that made the Rangers payments
“remuneration” (net pay bargaining, expectation of non-repayment, employee control of trust benefits, lax administration) were central there and absent here.
(3) Protects legal certainty in ordinary funding and group arrangements
The Court explicitly highlighted the risk of overreach and uncertainty if HMRC’s approach were accepted—particularly for:
director loan accounts, owner-managed company practices, and group-company funding of employee benefit providers.
(4) Signals that “legislative gap” arguments should be addressed by Parliament, not strained interpretation
The Court noted that Parliament subsequently addressed similar perceived mischiefs through:
Part 7A ITEPA (Finance Act 2011) and amendments to the
“loans to participators” regime (e.g. section 464A Corporation Tax Act 2010 as referenced).
That context supported a restrained interpretation of the pre-2011 law.
4. Complex concepts simplified
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“Earnings” (section 62 ITEPA): broadly, pay or reward for employment. It is about what counts as the employee’s taxable work-reward.
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“Redirected earnings”: where pay that is truly remuneration is routed to someone else (e.g. a trust) with the employee’s agreement.
The key is that the thing redirected must actually be remuneration in the first place.
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Benefits code vs earnings code: Parliament created detailed rules for certain non-cash benefits (like cheap loans).
Those rules usually tax the advantage (e.g. saved interest), not the whole loan amount.
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“Prewired” steps: a planned sequence of transactions designed to produce a particular economic outcome.
“Prewired” does not automatically mean “taxable as earnings”; characterisation still turns on what the employee in fact received and the legal nature of that receipt.
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Sham loan (rare): a document labelled “loan” that was never intended to be repaid. Only in that kind of case might the principal be treated as disguised pay.
5. Conclusion
[2026] EWCA Civ 445 establishes an important boundary in employment income taxation under pre-2011 law:
a company’s payment to an EBT made to fund a genuine, repayable employee loan is not, without more, the employee’s taxable earnings.
The Court of Appeal treated HMRC’s approach as an impermissible leap from “employment-related benefit” to “remuneration”, and firmly distinguished
Rangers SC as a case about remuneration paid to third parties—not about converting funding payments into earnings simply because they enable a loan.
The judgment thus protects the coherence of the ITEPA scheme (earnings vs benefits), curbs bootstrapping theories that would create broader uncertainty,
and underscores that perceived loopholes of this kind were addressed prospectively by legislation (notably Part 7A ITEPA), rather than by extending
earlier charging provisions beyond their principled limits.