Murray Group Holdings Ltd and Others v Revenue and Customs Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 08 July 2014 |
| Neutral Citation | [2014] UKUT 292 (TCC) |
| Date | 08 July 2014 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2014] UKUT 0292(TCC)
Upper Tribunal (Tax and Chancery Chamber)
Lord Doherty
Mr Roderick Thomson QC instructed by the Office of the Advocate General for Scotland appeared for the Appellant
Mr Andrew Thornhill QC, Mr Jonathan Bremner and Mr Thomas Chacko instructed by HBJ Gateley appeared for the Respondent
Income tax and NICs - Earnings - Remuneration trust - Individual sub-trusts - Whether payments into sub-trusts and/or loans from sub-trusts were "earnings" subject to PAYE and NICs - WT Ramsay Ltd v IR Commrs(1981) 54 TC 101 principle - Whether FTT erred in law.
The Upper Tribunal has dismissed HMRC's appeal against the decision of the FTT: the FTT had previously allowed the taxpayers' appeals against HMRC determinations seeking to assess certain trust arrangements involving the provision of loans to employees as "earnings".
Arrangements to which the Respondent companies in this appeal were party from 2001, involved the establishment of a "Remuneration trust" for the benefit of employees of the Murray Group and their families, the creation of in excess of 100 sub-trusts, funding by employer companies, and the making of loans to various employees. In almost all cases, loans for an extended term (10 years) and on a discounted basis were granted by the trustees to the employee. At the date of the FTT hearing, the terms of the loans had not expired, but the employees' general expectation was that they would be renewed.
HMRC issued a number of assessments for PAYE and NICs in early 2008, covering tax years from 2001-02 to 2006-07, and additional assessments in March 2010 for 2007-08 and 2008-09. These were Determinations under the Income Tax (Pay As You Earn) Regulations 2003 (SI 2003/2682), reg. 80 and Notices under the Social Security (Transfer of Functions) Act 1999, Social Security Contributions (Transfer of Functions, etc) Act 1999 section 8s. 8.
The FTT (Murray Group HoldingsTAX[2012] TC 02372), by a majority, allowed the taxpayers' appeal "in principle" against such Determinations and Notices (with a number of matters left over for later decision in the event of the parties not reaching agreement on them).
HMRC appealed the decision of the FTT.
Lord Doherty, sitting alone as a Judge of the Upper Tribunal ("UT"), said firstly that the question for the UT was: as a matter of law, was the FTT entitled to reach its conclusions? The UT's proper role in this respect, taking its guide from House of Lords authority, was to approach appeals from the FTT, which was a specialist Tribunal, with an appropriate degree of caution: recognising that the FTT alone is the judge of facts, its decisions should be respected unless quite clear they have misdirected themselves in law, and that the UT should not rush to find misdirections in law simply because they might have reached a different conclusion on the facts or expressed themselves differently.
Against this background, the Judge dealt with HMRC's principal challenges to the FTT's decision as follows:
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(2) On a fair reading of the FTT's decision as a whole, the Judge was not persuaded that the majority had fallen into any material error in their consideration and application of the Ramsay principle, and were not misapplying Ramsay through giving too much weight to the "legalistic" approach in Mayes ([2011] BTC 261). The majority identified the applicable law, they applied a purposive construction to the relevant statutory provisions and endeavoured to take a realistic view of the facts.
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(3) Given the FTT's findings that the reality of the transaction was that employees had loan access to funds, not more, their conclusion that there was not "unreserved disposal" of monies could not be faulted: they had not therefore misdirected themselves in terms of the Aberdeen Asset Management ([2013] BTC 726) decision, and they were conscious of, and gave thought to, considerations of the sort discussed in Scottish Provident ([2004] BTC 426). Nor was the Judge disposed to hold that the FTT had omitted to consider the arguments put by HMRC that there was an underlying tacit agreement between employer and employee to pay earnings, alternatively the payment of earnings as "directed" by the employee, even though those arguments were not expressly referred to in the decision.
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(4) As regards HMRC's submission that there had been a number of failures in fact finding (for example, no finding that the trustees were not ciphers), the Judge said the FTT's duty was to set out those facts necessary to an understanding of their decision. He was not persuaded that the majority failed to comply with that requirement; rather, he was satisfied the parties had been told "why they have won or lost".
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(5) HMRC had also submitted that certain findings that had been made by the FTT (for example, that there was merely a "degree" of orchestration and that it fell short of enabling an absolute transfer of funds to the employee) had been "unreasonable" on Edwards v Bairstow ((1955) 36 TC 207) criteria. The Judge did not think these challenges were made out, or was satisfied that where descriptions by the FTT were evaluative judgments, it was entitled to make them on the evidence before it.
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(6) HMRC's argument that the trustees were ciphers, and accordingly that Sempra ([2008] Sp C 698) and Dextra ([2005] BTC 355) ought to have been distinguished but that the FTT failed to do so, faced the difficulty that the FTT declined to find that the trustees were ciphers; and that was a course the FTT was entitled to take on the evidence.
The UT held that HMRC's appeal on the key matter to be decided therefore fell to be dismissed. The Judge added that in relation to certain termination payments, he was not satisfied the FTT had made any final disposal of the matter; nor had the FTT ruled upon the issue of grossing up in relation to certain guaranteed bonus payments, or in relation to the termination payments (so far as they find them to be taxable). These latter should be remitted to the FTT for determination.
This has been, perhaps not surprisingly given the important subject matter of "soft" employee loans, an extremely hard fought case. Before the Upper Tribunal, the submissions by HMRC's Counsel apparently took six days (and those of the taxpayers' Counsel in reply four). But the Upper Tribunal seems not to have had too much difficulty in rejecting HMRC's several arguments that the FTT had erred in reaching its decision. HMRC will be disappointed with the outcome.
Perhaps rather interestingly too, the Upper Tribunal was not swayed either by what had been a carefully and rather passionately argued dissenting minority view in the FTT decision - its focus was very much on review of the decision and reasoning of the FTT majority.
Case remitted to the FTT (i) with a direction to allow the taxpayers' appeals against the assessments relating to the payments to the sub-trusts of Sir David Murray, his sons, Mr McClelland, and Mr MacMillan; (ii) to proceed as accords in relation to the termination payments, the payments in respect of guaranteed bonuses, and any related questions of grossing up. Quoad ultra the appeal is dismissed.
[1]The appellants are HMRC. The respondents are companies in the Murray Group. The ultimate holding company is Murray International Holdings Ltd. The first respondent is a subsidiary holding company. The second respondent, third respondent and fourth respondent are companies in the Group. The fifth respondent ("Rangers") was part of the group during the years of assessment under appeal, but in the course of 2011 was sold outside the group.
[2]I have used the undernoted abbreviations in this decision:
"ICTA" - Income and Corporation Taxes Act 1988
"ITEPA" - Income Tax (Earnings and Pensions) Act 2003
"NIC" - National insurance contributions
"PAYE" - Pay As You Earn
"TCEA" - Tribunals, Courts and Enforcement Act 2007
"UT" - Upper Tribunal "
[3]The appeals relate to the tax years 2001/02 to 2008/09, and concern a number of assessments for PAYE and NIC issued between February and April 2008 covering the period up to 5 April 2007, and additional assessments issued in March 2010 for 2007/08 and 2008/09. The PAYE Determinations were raised under regulation 80 of the Income Tax (Pay as You Earn) Regulations 2003, and section 8 Notices of Decision for NIC were made under Social Security Contributions (Transfer of Functions, etc) Act 1999 section 8section 8 of the Social Security Contributions (Transfer of Functions) Act 1999. The initial assessments were variously amended and subsequently consolidated. The Determinations and Notices were served on the respondents and arose out of an Employees' Remuneration Trust established for the benefit of employees of the Murray Group and their families.
[4]The respondents' appeals against the Determinations and Notices (all heard together as one appeal) came before the First-tier Tribunal ("FTT") comprising Mr Kenneth Mure QC, Dr Heidi Poon CA, CTA, PhD, and Mr Scott Rae LLB, WS. The hearing took place on October-5 November 2010; 18-21 and 26-28 April, 3-6 May, and 7-10 and 16 November 2011; and 16-18 January 2012. The FTT were unable to reach a unanimous view. They released their decision on 29 October 2012 ([2012] TC 02372). The majority (Mr Mure and Mr Rae) allowed the respondents' appeal "in principle", deciding most of the contentious issues in their favour. A number of matters were left over for later decision in the event of the parties not reaching agreement on them. Dr Poon dissented. The appellants now appeal against the decision.
[5]The following were among the findings made by the majority:
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(iii) By Deed dated 20 April 2001 ("the Definitive Deed") MGM Ltd set up the Employees' Remuneration Trust ("the principal trust"). It was subsequently amended...
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