Commissioners for His Majesty's Revenue and Customs v MR Currell Ltd

Factual and Procedural Background

The appeal was brought by Company B (Appellant) against a decision of the Upper Tribunal (UT) allowing an appeal by Company A (Respondent) against determinations of Company B that Company A was liable to income tax under the PAYE system and to account for national insurance contributions in respect of a payment of £800,000 (the "Payment").

Company A paid £800,000 to an employee benefit trust (the "Trust") in November 2010. The Trust immediately on‑lent £800,000 to Director (the "Loan"). Director used the funds to purchase A shares from Spouse for £800,000. Spouse then made a loan of £800,000 back to Company A. The Loan was interest free unless Director became a "bad leaver", secured by a charge on the purchased shares, and was repayable after five years; it was not repaid at maturity.

The First‑tier Tribunal (FTT) found the transactions to be "prewired", that the substantial reason for the Payment was to enable the Trustee to provide the Loan, that the Loan was a genuine loan with a real repayment obligation, and that the Loan was made because of Director's work for the business. The FTT concluded the Payment comprised earnings and dismissed Company A's appeal.

The Upper Tribunal (UT) concluded the FTT had made an error of law in treating the Loan (or treating the Payment by reference to the Loan) as earnings, set the FTT decision aside and re‑made the decision, allowing Company A's appeal. Company B appealed to the Court of Appeal. Judge Falk (giving the lead judgment), with Judges Singh and Foxton, dismissed Company B's appeal and upheld the UT.

Legal Issues Presented

1. Whether the Payment of £800,000 to the Trust comprised "earnings" within section 62(2) of ITEPA (and so was chargeable to income tax and PAYE/NICs).
2. Whether the Loan (the principal) could, as a matter of law, constitute earnings or a "money's worth" benefit under section 62(2) of ITEPA.
3. Whether the FTT erred in law in treating the Loan (and thereby the Payment) as earnings and whether the UT erred in detecting a material error and in re‑making the decision.
4. Whether a "redirected earnings" analysis requires that the employee have an entitlement to the earnings before redirection.

Arguments of the Parties

Appellant's Arguments (Company B)

• The Payment funded the Loan, and the Loan was provided because of Director's services; therefore the Payment was earnings attributable to Director.
• Alternatively, the Loan itself (or its principal) constituted earnings or a taxable reward for services.
• The UT erred in detecting a material error of law in the FTT's reasoning and in re‑making the decision.
• Relied on authorities including the Supreme Court decision in Rangers SC to support taxation where payments are made to a third party in connection with remuneration.

Respondent's Arguments (Company A)

• The Loan was a genuine, repayable loan with real security and obligation to repay; the Payment to the Trust was not itself remuneration.
• The facts differ materially from Rangers SC: here the payments were not contractually or practically equivalent to remuneration available to the employee without repayment obligations.
• The UT was correct to find an error of law in the FTT and to re‑make the decision allowing Company A's appeal.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began from the statutory framework in ITEPA defining "earnings" (section 62) and the timing provisions for receipt (sections 15 and 18), noting also the benefits code (Chapter 7) for loans. The FTT's factual findings were accepted as to chronology, the prewired nature of the transactions, the genuineness of the Loan and the reason for the Trustee making the Loan (because of Director's work).

The Court of Appeal agreed with the UT that the FTT had made a material error of law in treating the Loan principal as necessarily constituting earnings (the FTT had treated a genuine repayable loan as potentially earnings subject only to inquiry into reason for payment). The court analysed Rangers SC and concluded that Rangers addressed whether payments to third parties can be remuneration (answer: yes in general subject to exceptions), but did not support the proposition that a payment which merely funds a genuine repayable loan is itself earnings.

The court explained two legal reasons why a loan principal is generally not earnings: (1) the repayment obligation means the borrower obtains use of funds subject to obligation to repay, and the taxable element is typically the benefit of a loan (interest concession) under the benefits code rather than the principal; (2) benefits are taxable as earnings only when they can be turned to account by the employee (Tennant and related authorities), and the principal of a genuine loan is not itself a convertible emolument. The court allowed that sham arrangements or loans never intended to be repaid could be characterised differently, but on the facts the Loan here was genuine.

The court accepted the UT's application of Degorce in setting aside and re‑making the FTT decision because the FTT's legal error was material. Having re‑made the decision on the FTT's factual findings, the UT (and Court of Appeal) concluded the Payment did not comprise earnings within section 62 ITEPA.

Holding and Implications

DISMISSED. The Court of Appeal dismissed Company B's appeal and upheld the UT's decision allowing Company A's appeal.

Direct effect: The determinations by Company B that the Payment comprised earnings are overturned; Company A's appeal is allowed. The court emphasised that the decision turned on the specific factual findings (a genuine, secured, repayable loan and the absence of facts aligning this case with Rangers SC). The court noted that no new broad precedent was to be taken beyond the conclusions reached on these facts.

This summary is based exclusively on the text of the provided opinion.