In Marlborough DP Ltd v HMRC [2021] TC08246, the First Tier Tribunal (FTT) held that loans funded by a remuneration trust were not earnings, or disguised remuneration taxable under part 7A of ITEPA 2003. They were taxable as distributions so no Corporation Tax deductions could be claimed by the contributing company.

Marlborough DP Ltd (MDLP) was a dental practice through which the sole director and shareholder, Dr Thomas, provided services.

The FTT allowed the appeal.

In his evidence, which the FTT found credible on the whole, Dr Thomas agreed that a main feature of the RT arrangements was to reduce MDPL’s tax liabilities and said it was also one of the objectives to take the monies contributed to the RT out into his hands tax-free. As a result, the only driver for deciding how much was to be paid into the RT arrangements was to reduce MDPL’s profits to nil for CT purposes. Dr Thomas’ understanding was that he would not have to repay the loans unless he wanted to. He admitted that absent the RT arrangements, he would have withdrawn the MDPL profits as dividends and not salary.

Though not relevant here, the FTT considered HMRC’s argument that even if the loans were taxable as earnings, no corporation tax deductions would be due as the contributions to the RT were not Wholly and exclusively for the purposes of MDPL’s trade. The FTT judge disagreed however the member sitting alongside her concurred with HMRC’s view.

Useful guides on this topic

Disguised remuneration loan charge
What is disguised remuneration? What is the loan charge? When does the loan charge apply? Will the loan charge affect me?

Disguised remuneration 2020 settlement opportunity
What is HMRC's position on disguised remuneration loans where settlement was not reached by 30 September 2020? Can a settlement still be reached?

FAQs for Disguised Remuneration Settlements
Can I just repay my loans? Which is cheaper: the loan charge or settling? How much will it cost to settle? And many other FAQs.

How to appeal an HMRC decision
Disagree with a HMRC decision? How to appeal, what type of decision can you appeal and what are your different options when you disagree with HMRC? What are the key steps in making an appeal?

External link

Marlborough DP Ltd v HMRC [2021] TC08246 

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