MR Currell Limited v The Commissioners for HMRC

A genuine loan carrying a real obligation of repayment does not ordinarily constitute employment earnings in the amount of its principal. A connection between the loan arrangement and the employee’s employment is insufficient. The court must also consider the character of what the employee received and whether the money was placed unreservedly at that employee’s disposal.

A payment by an employer to a trust may be earnings notwithstanding a later loan to the employee, but only where the payment itself is remuneration for the employee’s work. The statutory loan-benefit provisions would be undermined if the principal of any, or most, genuine employment-related loans were treated as general earnings under Income Tax (Earnings and Pensions) Act 2003, section 62.

M R Currell Limited paid £800,000 to the trustee of its employee benefit trust. Under arrangements agreed in advance, the trustee lent the same sum to Mark Currell, a director and shareholder, to acquire shares from his wife. The sale proceeds were then lent back to the company as working capital.

The First-tier Tribunal dismissed the company’s appeal against PAYE and NIC determinations, holding that the payment was earnings. It reasoned that a genuine loan could ordinarily confer a taxable benefit and that this loan rewarded Mr Currell’s services: M R Currell Limited v HMRC [2023] UKFTT 613 (TC).

The central issues were whether the First-tier Tribunal’s treatment of the loan involved a material error of law and, if so, whether either the trust payment or the loan principal was employment earnings.

1. Appeal allowed. The First-tier Tribunal’s decision was set aside. The Upper Tribunal remade the decision by allowing the company’s appeal against both determinations.

2. The First-tier Tribunal erred in holding that, in the vast majority of cases, a genuine money loan confers a benefit capable of being earnings in the amount of its principal. A real repayment obligation means that the borrower has received a loan, not money placed unreservedly at the borrower’s disposal. The statutory treatment of employment-related loan benefits and released loans confirms that Parliament did not intend the principal of genuine loans generally to be taxed as general earnings.

3. The error was material. Although the First-tier Tribunal framed its ultimate conclusion by reference to the payment to the trust, it repeatedly incorporated its erroneous conclusion about the loan into its reasoning and final conclusion. Applying the materiality approach under section 12 of the Tribunals, Courts and Enforcement Act 2007, justice therefore required the decision to be set aside.

4. On remaking the decision, the payment to the trust was not earnings. RFC 2012 plc (in liquidation) (formerly The Rangers Football Club plc) v Advocate General for Scotland [2017] UKSC 45 establishes that remuneration may remain taxable when paid to a trustee rather than directly to the employee, notwithstanding a subsequent loan. It did not govern this case. The payment here was made to facilitate a genuine, repayable loan, the company retained the use of the money as working capital, and there was no entitlement to £800,000 remuneration, no sacrificed remuneration, and no finding that repayment would be deferred until death.

5. Neither the loan nor the payment was earnings for income-tax or NIC purposes.

• Upper Tribunal (Tax and Chancery Chamber): Allowed the company’s appeal, set aside the First-tier Tribunal’s decision, and remade it to allow the appeal against the determinations: [2024] UKUT 404 (TCC).
• First-tier Tribunal (Tax Chamber): Dismissed the company’s appeal against the PAYE and NIC determinations: [2023] UKFTT 613 (TC).