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Cyclops Electronics and Graceland Fixing v HMRC

In Cyclops Electronics and Graceland Fixing v HMRC [2016] UKFTT 487 (12 July 2016) the FTT found that loan notes which contained a forfeiture clause inserted for tax reasons were not restricted securities.

Both companies had entered into a series of transactions that had resulted in three employees receiving loan notes; and HMRC contended that they should account for income tax under PAYE and NICs.

Cyclops and Graceland argued that because of the existence of a forfeiture provision in the terms of the loan notes they were restricted securities (ITEPA 2003 Part 7) and therefore no income tax or NIC was due (ITEPA 2003 s 425). HMRC contended that there had been no business purpose for the inclusion of the forfeiture provision; therefore the effect of the decision of the Supreme Court in UBS AG and Deutsche Bank [2016] STC 934 was that the loan notes...

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