In HMRC v PA Holdings Ltd a company entered into complex arrangements under which it paid certain employees bonuses in the form of dividends, which were financed from a capital contribution to P from employee benefit funds which in turn were derived from P. The Court of Appeal held that, although the payments took the form of dividends, they were in substance emoluments and within the charge to PAYE and NICs. Following this decision, anyone who uses aggressive dividend planning around remuneration would be well advised to review their position at the earliest opportunity. In particular, the use of alphabet share arrangements by which every employee of a company, or possibly just senior ones, receives dividends that replace bonuses must surely now be regarded as at risk of challenge from HMRC.
