Key Facts
- •Two companies, A D Bly and CHR, appealed against closure notices issued by HMRC denying corporation tax deductions for liabilities relating to future pension payments under an Unfunded Unapproved Retirement Benefit Scheme (UURBS).
- •The UURBS promised pensions calculated as a percentage of estimated profits.
- •HMRC argued the liabilities were not deductible because they were not incurred wholly and exclusively for the purposes of the trade (s. 54 CTA 2009) and/or were disallowed under s. 1290 CTA 2009.
- •The FTT dismissed the appeals, finding the primary purpose was tax reduction, not pension provision.
- •The Upper Tribunal considered whether the FTT erred in law.
Legal Principles
Deductibility of expenses requires they be incurred wholly and exclusively for the purposes of a trade (s. 54 CTA 2009). The taxpayer's object, not merely the effect, must be considered. A tax advantage can be a secondary purpose, rendering a deduction impermissible.
Scotts Atlantic Management Ltd v HMRC [2015] UKUT 66 (TCC), Mallalieu v Drummond, Vodafone Cellular Ltd v Shaw, MacKinlay v Arthur Young
Section 1290 CTA 2009 disallows deductions for employee benefit contributions unless qualifying benefits are provided within a specified timeframe.
Corporation Tax Act 2009, s. 1290
An appellate court is cautious about allowing new points on appeal not raised below, especially if new evidence or a different trial conduct would be required.
Pittalis v Grant, Singh v Dass, Notting Hill Finance Limited v Sheikh
Outcomes
Appellants' appeal dismissed.
The FTT correctly applied the 'wholly and exclusively' test. The FTT's finding that the primary purpose was tax reduction was supported by the evidence and was a conclusion available to it.
HMRC's appeal on s. 1290 dismissed (obiter).
The arrangements did not create 'employee benefit contributions' within s. 1291, meaning s. 1290 did not apply.