Tax Tribunal Confirms Employee Benefit Trust Loans Are Taxable Earnings

Neutral Citation: [2026] UKFTT 00993 (TC) Case Number: TC 09938 FIRST-TIER TRIBUNAL TAX CHAMBER London Taylor House Appeal reference: TC/2024/02384 INCOME TAX – discovery assessment in respect of remuneration paid to an employee benefit trust – appeal dismissed Heard on: 24 June 2026 Judgment date: 02 July 2026 Before TRIBUNAL JUDGE MATTHEW DONMALL MEMBER MOHAMMED FAROOQ Between [APPELLANT] Appellant and THE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMS Respondents Representation: For the Appellant: The Appellant [APPELLANT] appeared in person, with her husband [NAME] For the Respondents: Mr Sunny Singh, litigator of HM Revenue and Customs’ Solicitor’s Office DECISION Introduction 1. This is an appeal against a discovery assessment issued on 25 January 2014 ( the Assessment ) under section 29(1) of the Taxes Management Act 1970 ( TMA 1970 ) for the tax year ended 5 April 2010 in the sum of £7,534.40. The Assessment was made on the basis that the Appellant was employed by Aston Management Limited ( AML ) and that the payments made by AML of £36,301 that year to an associated Employee Benefit Trust ( EBT ), which in turn loaned the money to the Appellant, constituted earnings for the purpose of employment income. Legal framework 2. The Income Tax (Earnings and Pensions) Act 2003 ( ITEPA ) imposes the charge to tax on employment income. Section 7 defines “employment income” as meaning (among other things) “earnings within Chapter 1 of Part 3”. Chapter 1, Part 3, section 62 in turn explains what is meant by “earnings” in the employment income Parts of ITEPA: In those Parts "earnings", in relation to an employment, means- (a) any salary, wages or fee, (b) any gratuity or other profit or incidental benefit of any kind obtained by the employee if it is money or money's worth, or (c) anything else that constitutes an emolument of the employment.

3. In RFC 2012 plc (in liquidation) (formerly Rangers Football Club plc) v Advocate General for Scotland [2017] UKSC 45 ( Rangers ), the Supreme Court considered a scheme by which employers paid remuneration to their employees through an employees’ remuneration trust, from which the employees were paid a loan. The court concluded that the payments to the trust formed part of the earnings of the employees. Lord Hodge in giving the decision of the court held at [41] that the general rule is that “the charge to tax on employment income extends to money that the employee is entitled to have paid as his or her remuneration whether it is paid to the employee or a third party. The legislation does not require that the employee receive the money; a third party, including a trustee, may receive it.” After discussing exceptions to this rule, he reiterated at [59]: “Parliament in enacting legislation for the taxation of emoluments or earnings from employment has sought to tax remuneration paid in money or money's worth. No persuasive rationale has been advanced for excluding from the scope of this tax charge remuneration in the form of money which the employee agrees should be paid to a third party, or where he arranges or acquiesces in a transaction to that effect.” 4. HMRC’s power to make an assessment in respect of income tax arises under section 29 TMA: “(1) If an officer of the Board or the Board discover, as regards any person (the taxpayer) and a year of assessment— (a) that an amount of income tax or capital gains tax ought to have been assessed but has not been assessed, (b) that an assessment to tax is or has become insufficient, or (c) that any relief which has been given is or has become excessive, the officer or, as the case may be, the Board may, subject to subsections (2) and (3) below, make an assessment in the amount, or the further amount, which ought in his or their opinion to be charged in order to make good to the Crown the loss of tax.” 5. This subsection therefore empowers HMRC to make an assessment to tax if the HMRC officer discovers that there is an insufficiency of tax on any of the grounds at (a) to (c). As is well established, there is a subjective and objective element to this: the officer has to reach a conclusion that tax has been underpaid (the subjective element) and that conclusion has to be reasonable (the objective element), Anderson v HMRC [2018] UKUT 159 (TCC) at [25], [29].

6. The power at section 29(1) is qualified by subsections (2) and (3), but these restrictions apply only where the taxpayer has made and delivered a tax return in respect of the relevant year of assessment.

7. Section 34 provides that an assessment to income tax may be made at any time not more than 4 years after the end of the year of assessment to which it relates.

8. Where there is income tax due in respect of employment income, HMRC may seek that tax from the individual who has the liability to pay the tax due (the employee), instead of collecting it from the source of the payment (the employer), Hoey v HMRC [2022] EWCA Civ 656 at [67]. Evidence 9. We were provided with a hearing bundle running to 1,220 pages, inclusive of legal authorities. Before the hearing, HMRC also provided a replacement page 94 to this bundle, as the original page had mistakenly related to a different individual, rather than the Appellant. We also had the benefit of skeleton arguments from HMRC and from the Appellant.

10. At the hearing we heard oral evidence from the Appellant, her husband, and HMRC Officer Robert Dixon. Findings of fact 11. AML was a company incorporated in the Isle of Man which operated as an employer providing the services of its employees to end users. An AML document entitled “Scheme Overview” explained: “Who are we? AML is a provider of people to business. As an employment business using tax efficient remuneration planning, AML enables our employees to receive their income in a tax efficient manner, allowing them to take home up to 86% of their gross contract value (as opposed to circa 68% under PAYE). The Scheme Employees of AML receive a salary (which is subject to PAYE & NI deductions), as a result of the services provided on behalf of AML to end-user companies. In addition, AML employees may receive benefits from AML's Employee Benefit Trust (EBT) in the form of an employee related interest-free loan. The EBT has independent trustees who are able to make discretionary awards in the form of an interest free loan to employees as a result of the services they provide. … Will the loan ever be recalled? The loan is repayable on demand. Only the trustees (not AML) have the authority to recall a loan. However, the Trustees are obliged by law and the terms of the trust deed to always act in the best interests of the beneficiaries/employees. It is difficult to imagine a situation where it would be in the beneficiaries/employee's interests to recall the loans. …” 12. At the relevant time, the Appellant was a professional information technology consultant.

13. At some point in 2009, the Appellant was engaged to provide her services to an end client, the European Medicines Agency, through Intrasoft International SA, a technology company incorporated in Luxembourg.

14. We find that the structuring of this engagement was that the Appellant was employed by AML, which provided the benefit of the Appellant’s services through Intrasoft International (and potentially through another intermediary) for the European Medicines Agency as the end user. We make this finding because: (1) AML submitted details of this employment to HMRC by way of a P14 form detailing pay as you earn (PAYE) information and P11D form reporting taxable benefits, as reflected on screenshots of HMRC’s National Insurance Record System and P11D data, all in respect of the Appellant by reference to her [REDACTED]. We consider that AML would not have submitted such information to HMRC unless the Appellant was indeed an employee of AML. This included the following information in respect of the tax year to 5 April 2010: (a) Her employment with AML commenced on 4 May 2009. (b) She was paid £9,712 in salary, from which £646.40 in tax was deducted by way of PAYE. (c) She was given a loan of £36,301 in that tax year. (d) The value of the benefit of the loan was stated as £707. (2) After the Assessment was sent by HMRC to the Appellant’s home address, on 21 February 2014 it was AML who wrote to HMRC ostensibly on the Appellant’s behalf to appeal the Assessment. (3) In her clarified grounds of appeal of 21 January 2025, the Appellant did not dispute that she participated in the AML Scheme (“I participated in the AML scheme in good faith”) and received loans (“The loans were interest-free and provided at the discretion of the AML Employee Benefit Trust, not as part of my regular salary. Therefore, they were loans, not earnings…”). (4) In her witness statement of 12 September 2025, which was signed and had a statement of truth, she likewise stated “I entered into employment with Aston Management Limited (“AML”) in good faith, relying on professional advice and on representations that the arrangements were compliant.” and “The payments I received from AML were expressly documented as loans.” (5) Although in her oral evidence the Appellant sought to retract these statements in her grounds of appeal and witness statement as mistakes, she did not provide a satisfactory explanation of why she had made them. She did not directly deny that she was employed by AML, rather she said words to the effect of that she did not remember. A representation was also made on her behalf by her husband that there was no signed contract with AML. We are however satisfied in view of the points made above that she was so employed.

15. We accept that the Appellant entered into employment with AML in good faith. We also record the fact that HMRC likewise have not made any criticism of the Appellant for having participated in the AML scheme.

16. We find that in the tax year to 5 April 2010, the Appellant was paid i) £9,712 in salary, from which £646.40 was taken as tax by way of PAYE, and additionally ii) £36,301 to the EBT which was then paid on to the Appellant by way of a loan. The Appellant did not dispute these figures. She was clear in her oral evidence that she was paid for the work that she did.

17. No tax return was submitted for the Appellant in respect of the tax year to 5 April 2010, nor had HMRC sent her a notice requiring a return be submitted. We note this because it is relevant to the extent of HMRC’s power under s.29 TMA as discussed above.

18. As set out in Officer Dixon’s witness statement, on 5 November 2013, an HMRC officer reviewed the Appellant’s case and calculated that there was an insufficiency of tax, because the loan amount of £36,301 had not been treated as earnings, and on 25 January 2014, the Assessment was raised in the sum of £7,534.40.

19. On 21 February 2014, AML on behalf of the Appellant appealed the Assessment to HMRC.

20. There was then no substantive progression of the appeal to HMRC while lead litigation was ongoing, first Rangers , to 2017, and then Hoey, litigated from 2019 to 2022.

21. On 26 July 2022, HMRC wrote to the Appellant, explaining HMRC’s decision not to seek payment of any tax due from the end users of the Appellant’s services, i.e. exercising their discretion that was discussed in Hoey , noted above.

22. On 4 January 2024, HRMC wrote to the Appellant setting out their position and offering a statutory review.

23. On 27 January 2024, the Appellant accepted the offer of review.

24. On 11 March 2024, HMRC upheld the Assessment on review.

25. On 9 April 2024, the Appellant submitted the present appeal.

26. Finally, we would note that the appeal initially also challenged a further assessment in respect of tax year ending 5 April 2011 in the sum of £28,597 ( the 2011 Assessment ). However, HMRC subsequently withdrew the 2011 Assessment. We were told that this was because on review it was identified that it was invalid because there had been a tax return submitted in respect of that year (such as to restrict HMRC’s powers under s.29 ). The 2011 Assessment is not a matter before us in this Appeal. Discussion 27. The grounds on which the Appellant has sought to challenge the Assessment have been variously expressed. They included initially points which would not form a basis for overturning the Assessments, such as “This whole issue has taken a toll of my health and mental health” and “I have two kids in full time education”. Rather, the Tribunal’s jurisdiction is limited to determining whether the tax assessed is due and whether the Assessment was validly issued.

28. In the revised grounds of appeal which the Appellant provided on 21 January 2025 following a request from HMRC for further and better particulars, she set out four grounds: “Ground 1: The Loans Were Not Employment Income 1.0 The sums paid by AML to me, which were described as loans, should not be treated as employment income. These payments were not part of my earnings for employment purposes and should not be taxed as income under the Income Tax (Earnings and Pensions) Act 2003 ( ITEPA 2003 ). 1.1 The loans were interest-free and provided at the discretion of the AML Employee Benefit Trust, not as part of my regular salary. Therefore, they were loans, not earnings, and were repayable in accordance with the terms of the scheme. 1.2 HMRC’s classification of these loans as earnings contradicts the structure of the arrangement and is inconsistent with the applicable legal framework for employee loans. Ground 2: The AML Scheme Was Not Designed to Avoid Tax, and My Participation Was in Good Faith 2.0 I participated in the AML scheme in good faith, having been advised by professionals that the scheme complied with relevant tax laws. At no point did I engage in any fraudulent or deceptive actions and I acted on expert advice. 2.1 The scheme itself was not created to avoid tax, but rather to provide a tax-efficient means of receiving compensation. I dispute any claim that the structure of the scheme constitutes tax avoidance or evasion. Ground 3: The Application of Case Law 3.0 I refer to the case of RFC 2012 PLC (formerly Rangers Football Club PLC) v Advocate General for Scotland [2017] UKSC 45 , which addressed the taxation of payments under similar arrangements. However, the facts in my case are distinguishable, and HMRC’s reliance on this case to treat the loans as employment income is misplaced. 3.1 Payments of this nature should not be classified as taxable earnings. Ground 4: The Discovery Assessments Are Invalid 4.0 I contend that HMRC’s discovery assessments under section 29 of the Taxes Management Act 1970 are invalid, as they are based on an incorrect interpretation of both the facts and the law. Furthermore, the assessments were issued after an unreasonable delay and fail to reflect the true circumstances of my case.” 28. In our judgment, none of these are made out. Taking them in turn: (1) Ground 1: The Loans Were Not Employment Income In light of the Supreme Court in Rangers, the payments totalling £36,301 made by AML to the EBT were earnings to be treated as employment income at that point, irrespective of whether there was thereafter a loan to the Appellant or the terms of the same, because they were remuneration for her work. (2) Ground 2: The AML Scheme Was Not Designed to Avoid Tax, and My Participation Was in Good Faith The fact, which we accept, that the Appellant entered into the AML scheme in good faith does not alter the analysis. (3) Ground 3: The Application of Case Law While there are factual differences between the Appellant’s case and the case being considered in Rangers , those differences do not change the overall analysis, because the fundamental point made by the Supreme Court was that the charge to tax on employment income extends to money that is paid as remuneration even if it is paid to a third party such as a trust. That analysis applies to the Appellant’s case just as it did in the case of Rangers. (4) Ground 4: The Discovery Assessments Are Invalid We find that the Assessment was valid. In particular, we are satisfied that the HMRC officer both subjectively thought that there was an insufficiency of tax paid in the year to 5 April 2010, and that this was objectively reasonable. The total remuneration of the Appellant in the tax year to 5 April 2010 from AML was £46,013, comprised of £9,712 salary and £36,301 paid to the EBT and thereby loaned to the Appellant. Conversely, only £646.40 of tax had been accounted on these earnings by way of PAYE. Further, the Assessment was made within 4 years of 5 April 2010, having been made on 25 January 2014.

29. In her skeleton argument and in oral submissions, four further main points were made, which we address below. We also assure the Appellant that to the extent that an argument has not been fully set out here it has nevertheless been considered when reaching our conclusion.

30. First, there was a suggestion that it was for HMRC to establish that she was employed by AML, i.e. that the Appellant did not accept that she was so employed. As set out at paragraph 14 above, we find as a fact that she was employed by AML.

31. Second, the Appellant questioned the calculation of the Assessment. During the hearing, Mr Singh for HMRC was able to take the Appellant through that calculation, following which the Appellant and her husband did not pursue a challenge to the amount of the Assessment itself.

32. Third, the Appellant wondered why the 2010 Assessment had not been withdrawn, if HMRC had withdrawn the 2011 Assessment. Again, Mr Singh for HMRC explained the difference, being the fact that for the 2011 tax year, a tax return had been submitted, which meant that HMRC’s power to raise the 2011 Assessment under s.29(1) TMA was qualified under s.29(2) and (3), whereas there was no such restriction in respect of the 2010 Assessment, because no return was submitted for that year.

33. Fourth, the Appellant contended that the AML arrangements were not of her making. As her skeleton put it, “The Appellant was an information technology consultant who accepted employment under arrangements established by others and exercised no practical control over the remuneration structure.” There was also a suggestion that she never signed a contract with AML. In our judgment, even assuming these points were as asserted, it would not make a difference to the validity of the Assessment or its amount, given the factual findings that we have made. In particular, the central fact in this appeal is that the Appellant was remunerated for her work both by way of salary and by way of a payment to the EBT: income tax arises in respect of both. Conclusion 34. For these reasons, we dismiss the Appellant’s appeal. Right to apply for permission to appeal 35. This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice. Release date: 02 July 2026