Wired Orthodontics Limited & Ors v The Commissioners for HMRC

An appeal to the Upper Tribunal lies only on an arguable point of law, meaning an argument with a realistic prospect of success. Mere disagreement with the First-tier Tribunal’s factual findings or reasoning is insufficient.

Where an employee receives an asset with beneficial ownership, the asset may constitute money or money’s worth even if it is immediately sold and the proceeds are credited to a loan account. The readily convertible asset provisions may therefore apply where the transaction produces cash in substance.

The fact that remuneration is taxable does not automatically make the employer’s payment deductible for corporation tax. Deductibility depends on the statutory requirements, including the wholly and exclusively test, applied to the facts. A tax-reduction purpose may remain relevant even if the scheme fails to achieve its intended tax outcome.

Wired Orthodontics Limited and its directors sought permission to appeal against the First-tier Tribunal’s decision concerning a gold-based employee remuneration arrangement. The First-tier Tribunal had found that the arrangements produced earnings, that section 222 of the Income Tax (Earnings and Pensions) Act 2003 applied, and that the company’s expenditure was not incurred wholly and exclusively for the purposes of its trade.

The First-tier Tribunal refused permission to appeal on 31 October 2023. The Upper Tribunal considered four grounds concerning earnings, readily convertible assets and corporation tax deductibility. The central question was whether any ground disclosed an arguable error of law with a realistic prospect of success.

1. Permission test. Under section 11 of the Tribunals, Courts and Enforcement Act 2007, an appeal lies only on a point of law. The Applicants had to show an arguable error of law, meaning an argument with a realistic rather than fanciful prospect of success. The application was not a rehearing of the merits.
2. Earnings. Grounds 1 and 2 did not identify an arguable error. The First-tier Tribunal had considered the obligation to pay the employee benefits trust and had explained why it did not produce the legal consequence contended for. It had correctly understood the Supreme Court’s decision in Rangers and had reached its conclusion from the statutory principles and its findings at FTT[193]–[201], rather than by treating the loans themselves as earnings. The Applicants’ remaining arguments substantially reargued the facts and conclusions.
3. Readily convertible assets. Ground 3 was unarguable. The unchallenged findings established that the directors received beneficial ownership of gold worth £300,000. Their immediate sale of the gold and conversion of the proceeds into loan-account credits did not alter that receipt. Section 222 of the Income Tax (Earnings and Pensions) Act 2003 was directed precisely at situations involving payment of earnings in cash in substance.
4. Deductibility. Ground 4 was also unarguable. The requirements in sections 46(1) and 54 of the Corporation Tax Act 2009 were cumulative. The fact that earnings were taxable did not mandate a corporation tax deduction. Applying the approach explained in AD Bly Groundworks and Civil Engineering Limited v HMRC, deductibility depended on the facts and on whether the payment had a duality of purpose. A purpose of securing a tax reduction was not rendered irrelevant merely because the contrived scheme failed to achieve it.
5. Permission to appeal was refused on all grounds.

• First-tier Tribunal (Tax Chamber): Decision released on 6 January 2023. The Tribunal found that the arrangements produced earnings, that section 222 of the Income Tax (Earnings and Pensions) Act 2003 applied, and that the relevant expenditure was not deductible.
• First-tier Tribunal: Permission to appeal refused on 31 October 2023.
• Upper Tribunal (Tax and Chancery Chamber): Permission to appeal refused on 29 August 2024.