AD Bly Groundworks and Civil Engineering Limited & Anor v The Commissioners for HMRC

Under section 54 of the Corporation Tax Act 2009, deductibility turns on the taxpayer’s actual object or objects in incurring an expense, assessed at the time. An incidental consequence, including a tax advantage or private benefit, is not necessarily a purpose. But a tax-motivated choice is not protected where tax saving is itself an object: no exceptional finding of an all-pervading tax aim is required.

In remuneration and pension cases, a genuine trade purpose ordinarily supports deduction, but evidence can displace that inference. Alternatively, unfunded contractual pension promises were held not to be employee benefit contributions under sections 1290 and 1291; the statutory code does not impose universal alignment between deduction and recipient taxation.

A D Bly Groundworks and Civil Engineering Limited and CHR Travel Limited appealed against the Upper Tribunal’s decision in [2024] UKUT 00104 (TCC), which had upheld the First-tier Tribunal’s decision in [2021] UKFTT 0445 (TC). The tribunals rejected challenges to closure notices disallowing accounting provisions for unfunded promises of future pensions under UURBS arrangements.

The principal issue was whether the provisions were expenses incurred wholly and exclusively for the purposes of the companies’ trades under section 54 of the Corporation Tax Act 2009. HMRC also relied on the employee benefit contribution provisions in sections 1290 and 1291. The central question was whether the arrangements were genuine pension provision achieved through a tax-efficient method, or whether tax saving was itself a purpose of the expenditure.

1. Disposition. Lady Justice Falk dismissed the appeal. Lord Justice Cobb and Lord Justice Newey agreed. The Upper Tribunal had correctly upheld the First-tier Tribunal’s decision disallowing the deductions under section 54 of the Corporation Tax Act 2009.
2. Wholly and exclusively. The inquiry concerns the taxpayer’s object or objects in incurring the expense, assessed at the time. Object must be distinguished from effect. An incidental consequence is not necessarily an object, although an inevitable and inextricably involved result may be. The means by which expenditure is incurred may be a relevant circumstance but does not determine its purpose. The principles summarised in Scotts Atlantic Management Ltd and another v Revenue and Customs Comrs [2015] UKUT 66 (TCC) were correctly applied. There was no need to compare the facts with Scotts Atlantic or to find an all-pervading tax-avoidance purpose.
3. Application. The First-tier Tribunal was entitled to find that the UURBS arrangements were brought to the companies as tax-planning schemes; that there had been no genuine prior consideration of remuneration or pension needs; that the provisions were calculated by reference to percentages of profits without proper regard to the benefits; and that tax saving was the primary purpose, with pension provision at most incidental. The arrangements’ simplicity, their possible legitimate use, and the fact that some pensions later came into payment did not alter that conclusion.
4. Section 1290. Although unnecessary to the outcome, the alternative argument also failed. Sections 1290 and 1291 of the Corporation Tax Act 2009 require identifiable property held or available under an employee benefit scheme, or an increase in such property or reduction in liabilities. The references to property and benefits provided out of contributions did not extend to the employer’s general assets or to employees’ contractual rights. An other arrangement must be akin to a trust or scheme. The contractual promises, without a broader trust or scheme, were insufficient.
5. Statutory context. The legislation did not establish an overarching rule requiring deduction and taxation in the recipient’s hands always to coincide. Section 246 of the Finance Act 2004 supported the conclusion that unfunded non-contributory provision was addressed separately. The appeal was therefore dismissed.

• Court of Appeal (Civil Division): Appeal dismissed. The court upheld the Upper Tribunal’s decision and concluded that the pension provisions were not deductible under section 54 of the Corporation Tax Act 2009.
• Upper Tribunal (Tax and Chancery Chamber): In [2024] UKUT 00104 (TCC), the Upper Tribunal upheld the First-tier Tribunal’s decision on the wholly and exclusively issue and rejected the alternative argument under section 1290.
• First-tier Tribunal (Tax Chamber): In [2021] UKFTT 0445 (TC), the tribunal rejected challenges to closure notices disallowing deductions for the accounting provisions relating to the UURBS arrangements.