Wilson Wright Partner Blog

Companies lose Corporation Tax deductions case

A First Tier Tribunal has this week dismissed an appeal lodged by three companies who had sought to deduct Corporation Tax on contributions to Employee Benefit Trusts (EBTs).

The case in question involved three firms – J C McCahill (JCM) Ltd, Always Sheet Metal Ltd and Praze Consultants Ltd – whose appeals had been joined on the grounds that they all raised similar issues in relation to EBTs.

The tribunal was asked to consider a number of issues, including whether payments should be classed as indirect remuneration.

Judge Jonathan Richards, who presided over proceedings, explained the reasons for the ruling.

“The fundamental principle that emerges from these cases appears to us to be clear: if income is derived from an employee’s services qua employee, it is an emolument or earnings and thus assessable to income tax even if the employee requests or agrees that it be redirected to a third party.

“It was at least possible that the payments derived from their shareholdings, rather than from their status as employee or director. In order to establish that the ‘direction of earnings’ principle could apply, JCM would have had to lead evidence to establish that the source of each payment was the directorship, and not the shareholding.”

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Adam Cramer
Adam Cramer
Partner at Wilson Wright


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