In HMRC v MR Currell Limited [2026] EWCA Civ 445, the Court of Appeal (CoA) agreed with an Upper Tribunal (UT) decision which ruled that a loan to an Employee Benefit Trust was not taxable as earnings.
The First Tier Tribunal (FTT) ruled that a payment made by a company to an Employee Benefit Trust (EBT) was taxable as earnings, as it was a reward or benefit to Mr Currell for services provided to the company. The Upper Tribunal (UT) believed the FTT had erred in law and ruled that the payment was not taxable as earnings.
MR Currell Limited (MRCL) was a successful family painting and decorating business which often rewarded employees with sizable bonuses.
- In 2010, the company set up an EBT to incentivise employees.
- MRCL made a payment of £800,000 to the EBT with the intention that the funds would be used to reward employees.
- Mr Currell, a director, then applied to the EBT for an interest-free loan of £800,000 to buy A shares from his wife.
- The loan was repayable on the fifth anniversary of the loan agreement.
- Mrs Currell then made a loan back to the company for £800,000.
- Mr Currell continued to withdraw salary and dividends from the company, with no withdrawal being made to make payment on the loan.
- The loan was not repaid by the fifth anniversary.
HMRC opened an Enquiry, assessing the loan as an award for services provided by Mr Currell and taxable as earnings.
The FTT concluded:
- That the payment to the trust, not the loan payment, was earnings and that the arrangements were 'pre-wired', allowing Mr Currell to divert income that constituted a reward for services.
- That they were unconvinced by the evidence that the purpose of the arrangements was to ring-fence the funds for bonuses or rewards for employees.
MRCL appealed to the UT, which found the FTT had erred in law. The UT found that both parties could not agree on whether the contribution of £800,000 or the subsequent loan fell under the category of earnings.
The UT also found:
- The FTT had decided that in the 'vast majority of cases', the borrower of a loan receives some form of benefit or reward. The UT found there was an obligation to repay the loan, and Mr Currell had a liability as a trustee, which they found overrode any benefit.
- The loan had been used to purchase shares in the company and it was not used by Mr Currell for his own enjoyment.
HMRC appealed to the Court of Appeal (CoA), which found:
- That the loan was a genuine loan.
- There was no evidence to suggest that it was advanced and then not required to be paid back by Mr Currell.
- The loan was due to be repaid on the fifth anniversary. Due to HMRC opening an enquiry, there was concern about double taxation, which the court accepted.
- This differs from the Rangers case, where there was no obligation for the loans to be repaid.
- The payment to the company was not in the nature of a reward for the services provided by Mr Currell, as its function was to fund the loan.
- The loan was made in connection with work done by Mr Currell, but this did not turn a payment made to fund the loan into an emolument.
- The argument that Mr Currell had effectively received £800,000 in tax-free cash, in circumstances where he had been previously under-rewarded, was unfounded. He was likely to have much readier access to the cash if it had been retained by his wife instead of lending it to the company, which evidently required it for capital purposes.
- As a general provision, the advancement of a loan will not amount to payment of earnings for two reasons:
- Existence of an obligation to repay.
- The loan cannot be 'turned to account', i.e., converted to money's worth. Where a loan is made, it is not the loan itself that can be turned to account. Rather, what the employee can turn to account is the funds raised.
The appeal was dismissed.
Note: Had the arrangements been put in place a short time after they were, they would have been caught by the provisions of Part 7A ITEPA, which were introduced to catch arrangements like these.
Useful guides on this topic
Recovery of PAYE: Regulation 80 and 72 Assessments for PAYE
When can HMRC assess an employer or an employee for unpaid Pay-As-You-Earn (PAYE) and National Insurance Contributions (NICs)? What is a regulation 80 determination? What is a regulation 72 determination? Who is assessed and what are the conditions?
Disguised Remuneration Zone
This zone is all about the 'Diguised Remuneration' Loan Charge. It explains how to settle up with HMRC in respect of any pay that has been disguised as loans 'disguised remuneration' and includes contractor loans and Employee Benefit Trust loans.
EBT schemes: where are we now?
What is the current position with EBT schemes? How does the loan charge apply? What are the current settlement options?
Trusts
A summary of trust know-how.
Trusts and Tax Planning
What is a trust? How can trusts be used in tax planning? What are the advantages and what are the pitfalls?
External Link