Important developments are taking place in the field of remuneration planning.
New rules for ‘disguised remuneration’
On 9 December
Under anti-forestalling measures, payments of sums of money are already caught by the new rules. However, other asset transfers may still be possible before 6 April.
UBS AG v HMRC
The FTT released its decision in UBS on 6 August 2010 ([2010] UKFTT 266 (TC).
UBS wished to pay bonuses to its staff without PAYE and NIC. It
The FTSE did not move, and the employees redeemed the shares for cash (in some cases, over two years later).
UBS argued that the shares were ‘restricted securities’ within ITEPA 2003 Part
Before the FTT, HMRC’s core argument was that the employees became entitled to their bonuses before they acquired any shares in the SPV. HMRC must have hoped this would be a knockout blow. But the argument failed. There was no evidence of an employee being entitled to a discretionary bonus before the shares were awarded. However, HMRC had a minor victory on guaranteed bonuses.
HMRC also failed to show that the clause in the SPV articles which prevented it being associated with UBS could be ignored as a ‘pretence’ (in the Antoniades v Villiers sense, of being contrary to the whole purpose of the articles). This had to be a difficult argument for HMRC. The SPV and its directors intended the clause to have
However, HMRC won two important arguments. The FTT held that the shares were not ‘restricted securities’ as defined. Thus, there was no exemption on
These two findings are surprising: some employees kept their shares for over two years. However, the SPV had put in place a hedging arrangement designed to ensure that, whatever happened, the employees would receive the value of their intended bonus. If HMRC
Aberdeen Asset Management v HMRC
This case ([2010] UKFTT 524 (TC)) concerns an old PAYE and NIC scheme known as a ‘discounted share scheme’. Broadly, the employee obtained a beneficial interest in shares in what the FTT called a ‘money-box’ company, from which he could apply for soft loans and procure dividends.
The share value was diluted by an option (held by an EBT) to subscribe for shares in the company. The FTT held that PAYE and NIC were due, primarily on the basis that the employee had received a ‘pot of money’ in a ‘money box’ to which he had ‘the key’. The decision was released on 29 October 2010.
This case is a further example of the difficulties facing HMRC in alleging ‘sham’ as an alternative to a Ramsay argument. As in UBS, HMRC tried and failed to show that a key part of the arrangements (here, the option could be ignored as a ‘pretence’. However, this kind of challenge cannot be underestimated: see Prudential v HMRC (CA) [2010] STC 2459, CA, for an HMRC win using a related argument).
On the other hand, the decision blurs the line between what is a benefit in kind and what is a cash payment.
The FTT found that on receiving shares in the ‘money-box’ company, the cash in the company was placed unreservedly at the employees’ disposal, and the employee could be treated as receiving cash. The views of the appeal court on this issue will be awaited with great interest.
Summary
Having regard to UBS and Aberdeen it seems the current view of the tribunals in applying a BMBF style approach to technical tax planning is that ‘taking a realistic view of the facts’ gives them a lot of flexibility in
Important developments are taking place in the field of remuneration planning.
New rules for ‘disguised remuneration’
On 9 December
Under anti-forestalling measures, payments of sums of money are already caught by the new rules. However, other asset transfers may still be possible before 6 April.
UBS AG v HMRC
The FTT released its decision in UBS on 6 August 2010 ([2010] UKFTT 266 (TC).
UBS wished to pay bonuses to its staff without PAYE and NIC. It
The FTSE did not move, and the employees redeemed the shares for cash (in some cases, over two years later).
UBS argued that the shares were ‘restricted securities’ within ITEPA 2003 Part
Before the FTT, HMRC’s core argument was that the employees became entitled to their bonuses before they acquired any shares in the SPV. HMRC must have hoped this would be a knockout blow. But the argument failed. There was no evidence of an employee being entitled to a discretionary bonus before the shares were awarded. However, HMRC had a minor victory on guaranteed bonuses.
HMRC also failed to show that the clause in the SPV articles which prevented it being associated with UBS could be ignored as a ‘pretence’ (in the Antoniades v Villiers sense, of being contrary to the whole purpose of the articles). This had to be a difficult argument for HMRC. The SPV and its directors intended the clause to have
However, HMRC won two important arguments. The FTT held that the shares were not ‘restricted securities’ as defined. Thus, there was no exemption on
These two findings are surprising: some employees kept their shares for over two years. However, the SPV had put in place a hedging arrangement designed to ensure that, whatever happened, the employees would receive the value of their intended bonus. If HMRC
Aberdeen Asset Management v HMRC
This case ([2010] UKFTT 524 (TC)) concerns an old PAYE and NIC scheme known as a ‘discounted share scheme’. Broadly, the employee obtained a beneficial interest in shares in what the FTT called a ‘money-box’ company, from which he could apply for soft loans and procure dividends.
The share value was diluted by an option (held by an EBT) to subscribe for shares in the company. The FTT held that PAYE and NIC were due, primarily on the basis that the employee had received a ‘pot of money’ in a ‘money box’ to which he had ‘the key’. The decision was released on 29 October 2010.
This case is a further example of the difficulties facing HMRC in alleging ‘sham’ as an alternative to a Ramsay argument. As in UBS, HMRC tried and failed to show that a key part of the arrangements (here, the option could be ignored as a ‘pretence’. However, this kind of challenge cannot be underestimated: see Prudential v HMRC (CA) [2010] STC 2459, CA, for an HMRC win using a related argument).
On the other hand, the decision blurs the line between what is a benefit in kind and what is a cash payment.
The FTT found that on receiving shares in the ‘money-box’ company, the cash in the company was placed unreservedly at the employees’ disposal, and the employee could be treated as receiving cash. The views of the appeal court on this issue will be awaited with great interest.
Summary
Having regard to UBS and Aberdeen it seems the current view of the tribunals in applying a BMBF style approach to technical tax planning is that ‘taking a realistic view of the facts’ gives them a lot of flexibility in