“Cannot see the wood for the trees.”
The phrase is often attributed to Sir Thomas More, writing in the early 16th century in his catchily titled The Confutation of Tyndale’s Answer. Nearly 500 years later, a similar sentiment appears in Lady Justice Falk’s judgment in Currell v HMRC.
But let’s rewind.
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Back in September last year I wrote an article[1] in Taxation magazine comparing the Currell case and Marlborough DP v HMRC (“Marlboro”).
Both of these cases featured Baxendale-Walker style ‘remuneration trusts’. A tale of two remuneration trusts, if you like.
The article sets out the details of the Currell case (including a pretty little diagram) which isn’t quite the usual RT set-piece, despite all agreeing the steps were pre-wired. As such, I will not set out the details of either case again here.
Last week, the Court of Appeal released its judgement in Currell in respect of HMRC’s appeal. The judgement reaffirmed the decision of the UT that the payments to the trust were not the earnings of Mr Currell.
Like Marlboro, the case was distinguished from Rangers[2] on the facts with us, again, seeing the limitations of the Rangers decision [In Rangers, the nature of the payment as earnings was common ground. The issue was whether payment via a third party changed the tax result].
There was an important chronological difference between Marlboro and Currell. The former was carried out post Part 7A (aka disguised remuneration) whereas the latter was implemented just before those measures were introduced.
In Marlboro, the FTT applied the wrong test for determining whether Part 7A was engaged. They had essentially applied the same test for Part 7A as they had for whether a payment was general earnings (in other words, ‘from employment’).
This had been rejected in several other FTT cases including Strategic Branding Limited[3] and CIA Insurance Services[4]. As such, it was perhaps not a surprise that the FTT’s methodology was found to be an error in law.
The UT found that a loan may be made in connection with an employment (the relevant Part 7A test) even though it is not “from” employment.
This is not mere semantics. It is a materially wider test. As a result, in Marlboro, after applying the correct test it was held that Part 7A applied to the loan.
I ended my earlier article with a question. Would Part 7A have applied to Currell had the arrangements been implemented post-enactment?
My view at the time was that it likely would have done (albeit with scope for structuring to achieve a similar commercial outcome).
I think the Court of Appeal judgement supports this. At para 102:
HMRC are obviously of the view that Mr Currell should not have been able to “access tax-free cash” from the Company in the way he did. Parliament evidently agreed. If the transactions had been implemented only a short time after they were, the charge that HMRC seek to impose in this case would have arisen under [Part 7A / disguised remuneration].
Indeed, this led on to Falk LJ’s arboreally themed warning against:
“It is of course right that HMRC should consider whether arrangements implemented before these changes fail under the pre-existing law. But, however proper HMRC’s motives are, caution is required to avoid a risk of over-reach, with consequential risks to legal certainty. A close inspection of the trees can risk a failure to distinguish the overall wood”.
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If Sir Thomas More’s work was about unravelling Tynedale’s “confutation” then there is perhaps some parallel.
We are, perhaps, beginning to see greater clarity around remuneration trusts and EBT arrangements:
- The limits of the application of the Rangers case (and the re-direction of earnings principle);
- The relevant test for general earnings (a narrower ‘from employment’ test); and
- The relevant trigger for Part 7A / disguised remuneration (a much wider ‘connection’ test).
The trees are still there.
But the wood is finally coming into sharper focus.
[1] https://www.taxation.co.uk/articles/currell-elborne-a-tale-of-two-remuneration-trusts
[2] RFC 2012 Plc v Advocate General [2017]
[3] Strategic Branding Limited v HMRC TTC/2018/06099; TC/2018/06613
[4] CIA Insurance Services Limited v HMRC TC/2018/01518