The decision has been handed down in the conjoined cases of Tower Radio Ltd and Total Property Support Services Ltd, lead cases on a marketed tax avoidance scheme designed to avoid PAYE and NIC on payments to employees.
The basics of the scheme were very simple: the company formed a subsidiary, stuffed it full of cash and gave the shares to the employee in circumstances that the Income Tax charge on the award of shares was legitimately disapplied. The employee more or less immediately put his shiny new company into liquidation and collected the cash.
Step-by-step the scheme arguably worked. But the First-tier Tribunal nonetheless found in favour of HMRC, holding that the scheme was “a blatant example of what the Upper Tribunal called a “money in, money out” arrangement”. In the Tribunal’s view the “only coherent analysis of the transaction is that the surplus cash of the employer was paid to the relevant employees”: everything else was simply “the mechanism by which the benefit of a sum of money was to be channelled to an employee” – or, as the Tribunal put it “merely paper-shuffling”.
The decision follows a whole line of cases dealing with various arcane stratagems which have sought to avoid PAYE and/or NIC on what are essentially cash payments to employees or directors: what have been described in another case as “disguised or artificially contrived methods of paying money to employees”. The principle which has now been fairly well established is that if a lump of cash leaves an employer in circumstances that it is destined to end up with a particular employee, and it (or a sum demonstrably traceable to it) duly ends up in fairly short order in the hands of the employee, the courts are very likely to regard everything in between as nothing more than a “process for delivery”. The precise “process of delivery” may not matter very much: we’ve now seen the courts look through platinum sponge, contingent ‘reversionary’ interests in trusts and shares in “special purpose vehicle” companies.
It’s worth noting that the events which were the subject of the appeal in Tower Radio took place as long ago as 2004. The tax planning landscape has changed dramatically over the intervening decade: with the benefit of hindsight it scarcely seems possible that it was thought, just ten short years ago, that such unsophisticated planning stood much chance of success.