AD Bly Groundworks and Civil Engineering Limited & Anor v The Commissioners for HMRC [2025] EWCA Civ 1443

[2025] EWCA Civ 1443Case No CA-2024-001410
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL (TAX AND CHANCERY CHAMBER)
JUDGE THOMAS SCOTT AND JUDGE ASHLEY GREENBANK
[2024] UKUT 00104 (TCC)
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 14/11/2025
Before
LORD JUSTICE NEWEYLADY JUSTICE FALKLORD JUSTICE COBB
Between
(1) A D BLY GROUNDWORKS AND CIVIL ENGINEERING LIMITEDAppellants(2) CHR TRAVEL LIMITEDAppellantTHE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMSRespondents
Andrew Thornhill KC and David Welsh (instructed by Morr and Co LLP) for AppellantsRebecca Murray (instructed by HMRC Legal Group) for RespondentsHearing Hearing date: 5 November 2025
Approved JudgmentThis judgment was handed down remotely at 2.00pm on Friday 14 November 2025 by circulation to the parties or their representatives by e-mail and by release to the National Archives..............................

Introduction

[1]This is an appeal by two taxpayers, A D Bly Groundworks and Civil Engineering Limited (“A D Bly”) and CHR Travel Limited (“CHR”), against a decision of the Upper Tribunal (“UT”) dismissing their appeal against a decision of the First-tier Tribunal (“FTT”). The FTT had rejected challenges by A D Bly and CHR to closure notices which denied deductions for provisions in their accounts in respect of pensions.[2]The dispute concerns arrangements entered into by A D Bly and CHR on the advice of their accountants, Charterhouse (Accountants) Limited (“Charterhouse”). The arrangements took the form of an Unfunded Unapproved Retirement Benefit Scheme (“UURBS”). The UURBS comprised contractual commitments entered into with directors and other key employees under which A D Bly and CHR made unfunded promises to provide those individuals with future pensions. They made provision for the liabilities they had taken on in their accounts and calculated their profits for corporation tax purposes on the same basis. The closure notices amended their tax returns to treat the provisions as non-deductible.[3]The arrangements were marketed by Charterhouse to a number of its clients and were notified to HMRC in accordance with the Disclosure of Tax Avoidance Schemes (or “DOTAS”) legislation in Part 7 of the Finance Act 2004 (“FA 2004”). HMRC’s challenges to the arrangements have led to a number of appeals to the FTT by clients of Charterhouse. The appeals brought by A D Bly and CHR have been designated as “lead cases” under the FTT’s rules.[4]HMRC’s primary contention is that the amounts in question were liabilities incurred for the purpose of a tax avoidance scheme rather than expenses incurred wholly and exclusively for the purposes of the trade, such that deductions should be denied under s.54 of the Corporation Tax Act 2009 (“CTA 2009”). HMRC’s alternative argument, maintained by way of Respondent’s Notice in this court, was that the deduction sought was in respect of “employee benefit contributions” and should be disallowed under s.1290 CTA 2009. HMRC’s first argument was accepted by the FTT so the alternative argument did not strictly arise for decision, but it was briefly considered and rejected. The UT endorsed the FTT’s decision on the wholly and exclusively issue but also dealt in more detail with the argument on s.1290, on which it reached the same conclusion as the FTT, namely that s.1290 did not apply.[5]I have concluded that the UT made no error and that the appeal should therefore be dismissed.

The facts

[6]The findings of fact in the FTT’s decision ([2021] UKFTT 0445 (TC), Judge Greg Sinfield and Tribunal Member James Robertson), and the FTT’s assessment of the witness evidence, are important and provide the key to this case.[7]A D Bly is a provider of civil engineering and groundwork contracting services which at the relevant time had 7 directors and around 220 employees. It was owned, through a holding company, by all but one of its directors. During the period in question, in May 2013, A D Bly transferred its business to a limited liability partnership (LLP) of which it became a partner (FTT decision at [2], [44] and [45]).[8]CHR is engaged in the wholesale travel agency business. It had 2 directors and around 20 employees. One of its directors, Mr Stephen Galpin, was its sole shareholder. Prior to the period in question, in April 2011, CHR had similarly transferred its business, including all its employees, to an LLP (FTT decision at [2], [11] and [52]).[9]The UURBS in issue were implemented by A D Bly in the accounting periods ended 30 November 2012 and 30 November 2013, and by CHR in the accounting periods ended 31 March 2013 and 31 March 2014. In each case the pensions were calculated by reference to a portion of the company’s pre-tax profits, with the aggregate amount being 100% of those profits in one of the years and 80% in the other. The UURBS were documented by deeds entered into with each relevant individual at or close to the end of the accounting period in question. The FTT found at [77] that these documents were in identical terms save as to names, dates and amounts. In outline, the company promised to pay a pension from a specified date, calculated as the amount that would have been payable under an annuity contract purchased for the “Payment Sum”. The Payment Sum was in turn determined by reference to the proportion of the projected profits allocated to the director or employee in question in the relevant board minutes.[10]The FTT heard evidence from Mr Galpin of CHR and from two directors of A D Bly. It largely discounted the evidence of one of the A D Bly directors because he was appointed after the relevant period and instead considered the evidence of the managing director of A D Bly, Mr Aaron McSkimming. The FTT also recorded agreed expert accounting evidence to the effect that FRS 17 required the UURBS liabilities to be measured on an actuarial basis by reference to estimated future cash flows (FTT decision at [12] and [23]).[11]The FTT observed at [13] that “the witness statements of Mr Galpin and Mr McSkimming contained many passages that were identical or materially similar save as to names, dates and amounts” and concluded at [20] that, “to a large extent, Charterhouse told both witnesses what to say and how to say it”. It provided examples referring to the appointment of a recruitment consultant to consider the appropriate remuneration package including pension provision, and to the role of UURBS as an incentive which could be implemented without a negative effect on the business. The FTT also noted at [56] that the views of Mr Galpin and Mr McSkimming about the benefit of the UURBS were formed by what Charterhouse told them and were “materially identical”, quoting a passage from Mr Galpin’s witness statement about the UURBS being “first and foremost a pension scheme”, albeit that CHR was “aware that there was an immediate tax consequence in the provision being deductible…for tax purposes”, and that the “key benefit and the reason and motivation for taking up the planning” was to retain funds in the business as working capital, which was essential to allow growth.[12]The directors’ witness evidence was that, before the scheme was first implemented, the board had met to discuss the remuneration package of key individuals and the need to incentivise and motivate them, and that there was a meeting with Charterhouse to discuss the issues raised only after that occurred. However, the FTT was not satisfied for either appellant that there was any such separate meeting before the meeting with Charterhouse to discuss the establishment of the UURBS (FTT decision at [26], [27], [54] and [55]).[13]Rather, there was a meeting with Charterhouse at which tax was discussed and which led to a letter of engagement which included a warning regarding what might be perceived as “aggressive tax planning”, a disclaimer as to Charterhouse’s inability to advise on the “suitability of an UURBS as a mechanism for providing pensions to employees”, a statement that Counsel’s advice was to be relied upon in respect of the tax consequences, and a recommendation to employ the services of a recruitment consultant (FTT decision at [27]-[31] and [57]-[59]). However, the firms apparently employed for that purpose (Synergis for the first year and FLB for the second) advised only on what they termed the “commercial suitability” of the pension provision, offering “no financial, pension, investment or tax planning advice” (FTT decision at [39] and [69]).[14]There were also some material discrepancies between the figures considered by Synergis and FLB as to the projected pre-tax profit and proposed allocation and those actually implemented. For the first year, Synergis advised A D Bly by reference to a profit figure of £1,040,000 and agreed with the company’s suggestion of allocating 100% of those profits in a particular way, whereas the board meeting held the following day allocated 100% projected profits of £1,300,000 and also adjusted the percentage allocated to each individual. The minutes made no reference to the discrepancies (FTT decision at [38]-[43]). For the second year, FLB advised A D Bly by reference to a proposed 80% allocation of profit of £105,000 plus a projected uplift of £3,000,000, the board meeting referred to a profit of around £2.88m, but the final accounts for the year allocated 80% of pre-tax profits of a far higher figure, £5,543,975 (FTT decision at [46]-[48]).[15]In the case of CHR, for the first year Synergis proposed an allocation of £125,000 to each of the two directors. The board meeting allocated 80% of estimated pre-tax profits of £312,000 three ways (FTT decision at [68]-[70]). For the second year FLB advised an 80% allocation of projected pre-tax profits of £225,000, but in the event 100% of that amount was allocated, with no explanation of the discrepancy (FTT decision at [73]-75]). The FTT and UT decisions Wholly and exclusively

The FTT and UT decisions

[16]The FTT recorded at [80] that the parties agreed that the test for determining whether an expense was incurred wholly and exclusively for the purposes of the trade was as set out in the UT’s decision in Scotts Atlantic Management Ltd and another v Revenue and Customs Comrs [2015] UKUT 66 (TCC), [2015] STC 1321 (“Scotts Atlantic”) at [50]-[55] (see [28] below). The FTT directed itself at [81] with reference to the principles set out in that summary and then considered the parties’ arguments.[17]The FTT’s reasoning on the wholly and exclusively issues is set out at [88]-[99]. It is a fairly lengthy passage but it warrants being set out in full:
“88. There was not really any dispute that the Appellants had two purposes in mind when they decided to establish the UURBS and enter into the Unfunded Pension Agreements with the directors. Mr McSkimming and Mr Galpin maintained that the primary reason for the arrangements was to provide future pensions for key individuals in a way that did not involve any immediate reduction in working capital and, at the same time, the creation of a tax deduction which reduced the amount of tax payable by the company. The issue is whether the companies were doing so wholly and exclusively for the purposes of their businesses or whether there was a non-business purpose. 89. Our conclusion in [20] that the witness statements were largely a product of Charterhouse and the striking similarities between them cast doubt on those passages which purport to describe the Appellants’ reasons for setting up the UURBS. Both Mr McSkimming and Mr Galpin said that the boards subsequently met with Charterhouse to discuss remuneration or pension issues. The explanation given by Mr McSkimming in cross-examination for the similarities in the language used in the witness statements was that both companies were implementing the same pension planning arrangements but that cannot explain how two boards of directors formed exactly the same view before, on their evidence, any pension planning was suggested by Charterhouse. 90. It seems to us to be inherently unlikely that two separate companies with very different businesses would independently decide to do the same thing for the same reasons and in exactly the same way. We are not satisfied that both companies separately came to the conclusion that they needed to discuss the remuneration packages of key members of the business to incentivise and motivate them while maintaining working capital (see [27] and [55]). Neither Appellant produced any documentary evidence of such board meetings or discussions despite Mr McSkimming confirming that all board meetings were minuted. We do not accept that the Appellants’ boards of directors met to discuss the need to motivate and incentivise certain directors by offering enhanced remuneration packages while not using any working capital before being approached by Charterhouse with the idea for an UURBS. 91. Both witnesses said the proposal put forward by Charterhouse was primarily a pension scheme although tax was also discussed at the meeting. It seems to us to be unlikely, if not completely illogical, that the Appellants would seek advice on remuneration and pensions from Charterhouse which did not purport to advise on either of those things. Charterhouse’s letters of engagement stated that it could not advise on the suitability of an UURBS as a mechanism for providing pensions. In the letters, Charterhouse offered to liaise with a remuneration consultant who would produce an estimate of the overall level of remuneration, including the UURBS, for certain directors. In our view, if the Appellants had genuinely been concerned about the level of remuneration and pensions provision which they made for their directors, they would have sought advice from an executive remuneration consultancy firm and a pensions adviser rather than a firm of accountants. We are not satisfied that the Appellants sought advice about directors’ remuneration from Charterhouse which then suggested that they should set up an UURBS. We find that the proposal to enter into the UURBS was brought to the Appellants as a tax planning scheme by Charterhouse. 92. In his witness statement, Mr Galpin said that the UURBS was first and foremost a pension scheme although the directors were aware of the tax benefit. If that was true then we cannot understand why the directors of CHR Ltd did not seek any pensions advice. At no point did either Appellant take advice on the most appropriate way to provide pensions for the directors. Both Appellants were advised by Charterhouse to instruct a remuneration consultant but the remuneration consultants specifically did not give pensions advice. In their reports, both Synergis and FLB stated that they did not offer financial, pension or investment advice. 93. If the Appellants had wanted to incentivise, motivate and retain key employees then we would have expected the Appellants to seek advice on the competitiveness of their remuneration packages but they did not do so. Although they are described in the papers as remuneration consultants, we were not provided with any evidence to show that Synergis and FLB had any expertise in the area and their reports clearly only addressed the “commercial suitability” of the provisions. We were struck by the fact that the only comparative evidence of remuneration levels referred to in the reports is a reference in FLB’s reports to the indication of senior salaries in the accounts of companies conducting broadly similar activities. We would have expected any remuneration consultant to carry out a much more detailed exercise and to explore comparators in depth if the true purpose was to ascertain appropriate levels of remuneration to retain, incentivise and motivate senior personnel. Accordingly, we do not accept that this was the reason for establishing the UURBS. 94. Charterhouse’s engagement letters show that tax was at the forefront of the Appellants’ minds when they were considering establishing the UURBS. In our view, there is no other rational explanation for paragraph 1 of both letters being headed “Warning Regarding Tax Planning” and stating that “[a]ny tax planning covered by this engagement letter may be considered to be aggressive tax planning by [HMRC] and as such they are very likely to raise enquiries into any transactions effected as part of the planning ….”
. Mr Mullan said that the paragraph was no more than a standard warning but we disagree. The wording and prominence of the warning demonstrate that it is much more than a standard clause such as are included in Charterhouse’s Standard Terms of Business attached to the engagement letters. 95. We have concluded that the provision of pensions to directors was, at best, only an incidental aim of the Appellants when they established an UURBS and entered into the Unfunded Pension Agreements. This is shown by the fact that the size of the pension provision was determined as a percentage of the profits before tax regardless of the level of those profits and without discussion of or reference to any future pensions benefit to the directors. 96. The amount of estimated profits used as a basis for making pension provisions by A D Bly in November 2012 was £1,300,000 which was significantly greater than the amount of £1,040,000 used by Synergis in making its recommendation that 100% of the profits could be used. Notwithstanding the increase in estimated profits, there does not appear to have been any discussion by the directors about whether the increase should lead to a reduction in the percentage of profits allocated to Unfunded Pension Agreements. The following year, the estimated profits of A D Bly were in the region of £3,000,000 but the FLB report and the board minutes do not record any discussion of whether the directors needed or why the company should make a pensions provision for its directors that was more than twice as large as the one made the year before. This disregard for the actual amounts of the pension provision made in relation to the individuals was shown even more clearly by the fact that the accounts for the period ended 30 November 2013 eventually included a provision of £4,435,180 for directors’ pensions, being 80% of profits before tax of £5,543,975, despite that sum not being considered by FLB in its report or discussed in the directors’ meetings. 97. In 2014, the directors of CHR Ltd seemed to disregard FLB’s advice that the provision should be 80% of the estimated profits and decided to allocate all of the profits for the year to the Unfunded Pensions Agreements. There was no discussion or explanation for the decision to make greater provision for pensions than that recommended by FLB. 98. We are also unconvinced by the commerciality of the arrangements. Putting aside the uncertainty inherent in the scheme, it commits the Appellants to paying significant amounts in the future that must reduce the future distributable profits of their businesses (although we note that in both cases the businesses have been transferred to associated entities). The Unfunded Pension Agreements provide that the Executive may by written notice require the Appellant to use the adjusted (ie increased) amount of the provision to purchase an annuity to provide the same benefits as under the agreement. The Appellants accepted that, in fact, no annuity providing such benefits was currently available on the market. If it were than [sic] it is clear that if, as here, provisions for the Unfunded Pensions Agreements are made at rates of 80% and 100% of profits over several years then the Appellants are accepting a potential liability to pay an amount equal to several year’s annual profits adjusted for inflation as a lump sum in a single year. The witnesses had two responses to that. First, they stated that they were confident that the businesses were expanding and would be able to meet the future obligations and, secondly, that, as potential recipients of the pensions, they recognised that there was a risk that they would not be paid but believed the arrangements were in the best interest of the businesses. We do not accept that those points demonstrate that the UURBS was a commercial arrangement. In the case of A D Bly, the estimated profits figures show there is considerable volatility while the estimated profits of CHR Limited used in the relevant years remained broadly the same. In both cases, the future business risk remains substantial. 99. On the basis of the facts found and for the reasons given above, we have concluded that the Appellants’ primary purpose in entering into the Unfunded Pension Agreements was to reduce their liability to pay tax without incurring any actual expenditure. It follows that the liability to pay pensions under the Unfunded Pension Agreements was not incurred wholly and exclusively for the purposes of the Appellants’ trades. The fact that A D Bly is paying four pensions does not change our view that the pension provisions were not made wholly and exclusively for the purposes of the Appellants’ trades.”[18]I draw the following key elements from the FTT’s assessment: a) Contrary to the witness evidence, A D Bly and CHR were both approached by Charterhouse before they had developed any idea of enhancing their remuneration packages without immediately using working capital. b) The FTT was sceptical that either company would seek advice from Charterhouse on remuneration or pensions, and it did not provide it. c) A D Bly and CHR were also not genuinely concerned about the level of remuneration and pensions provision. They at no stage sought or obtained pensions advice, and obtained no advice (or at least no advice at the level of detail that would be expected) from a remuneration consultant about the competitiveness of remuneration packages. d) Rather, the UURBS was brought to them as a tax planning scheme, and tax was at the forefront of their minds. The provision of pensions was “at best” an incidental aim and the primary purpose was to reduce tax without incurring expenditure. The primacy of tax considerations was demonstrated by the fact that the size of the provision was determined as a percentage of profits regardless of the level of those profits, and without reference to the level of future benefit. The FTT also expressed a concern as to the commerciality of the arrangements and was not deterred from its conclusions by the fact that four of the A D Bly pensions are now in payment.[19]The UT granted permission to appeal the FTT’s decision on grounds broadly corresponding to those before this court (see below). It refused permission on four other grounds comprising Edwards v Bairstow [1956] AC 14 challenges to finding of fact. In summary, the UT’s decision ([2024] UKUT 00104 (TCC), Judge Thomas Scott and Judge Ashley Greenbank) concluded that the FTT had relied on Scotts Atlantic at [50]-[55] as a helpful summary of the leading authorities, had not “fact matched” to that case and had made no error of law. The UT also observed that some of the arguments effectively sought to reintroduce the Edwards v Bairstow challenges for which permission had been refused, but considered and rejected those arguments in any event, noting that the weight to be given to factors such as the failure to take pensions advice was a matter for the FTT.

Section 1290 CTA 2009

[20]As to s.1290 CTA 2009, the FTT rejected HMRC’s argument that it applied by reference to this court’s decision in NCL Investments Ltd and another v Revenue and Customs Comrs [2020] EWCA Civ 663, [2020] 1 WLR 4452 (“NCL CA”) at [77] and [78]. By the date of the UT’s decision NCL CA had been upheld in the Supreme Court ([2022] UKSC 9, [2022] 1 WLR 1829: “NCL SC”). The UT agreed with the FTT, concluding that the Supreme Court had effectively endorsed the Court of Appeal’s reasoning and that the wording of the legislation was in any event inapt to cover the present case.[21]NCL is considered further below, but in outline it concerned the deductibility of an accounting provision for the cost of funding an employee benefit trust (“EBT”) to acquire shares to satisfy employee share options granted by the EBT. HMRC relied, among other arguments, on s.1290 to deny a deduction for the provision.

The Grounds of Appeal and Respondent’s Notice

[22]The two grounds of appeal to this court may be summarised as follows: Ground 1: The FTT and UT failed properly to apply Scotts Atlantic. There is a fine dividing line between choosing a tax-efficient arrangement and having a separate tax-saving purpose. Scotts Atlantic involved a highly artificial scheme with an “all-pervading” tax avoidance purpose, which this was not. The arrangements were intended to provide pensions and were doing so. Ground 2: Alternatively, Scotts Atlantic was wrongly decided. It was also inconsistent with this court’s decision in Hoey & others v Revenue and Customs Comrs [2022] EWCA Civ 656, [2022] 1 WLR 4113 (“Hoey”) and it misapplied the comments of Lord Cross in Ransom v Higgs [1974] 1 WLR 1594, 50 TC 1 in respect of one of the joined appeals in that case, Kilmorie (Aldridge) Ltd v Dickinson (“Kilmorie”).[23]By their Respondent’s Notice, HMRC endorsed the reasons given by the UT for dismissing the appeal, but also sought its dismissal on the ground that deduction was precluded under s.1290 CTA 2009, contrary to the UT’s view. In essence, HMRC say that the purpose of s.1290 is to align the timing of a deduction with taxation of the receipt (in this case when pensions were paid) and the UT interpreted it too narrowly.

Wholly and exclusively: s.54 CTA 2009

[24]Section 54 CTA 2009 provides: “54. Expenses not wholly and exclusively for trade and unconnected losses(1) In calculating the profits of a trade, no deduction is allowed for— (a) expenses not incurred wholly and exclusively for the purposes of the trade, or (b) losses not connected with or arising out of the trade.(2) If an expense is incurred for more than one purpose, this section does not prohibit a deduction for any identifiable part or identifiable proportion of the expense which is incurred wholly and exclusively for the purposes of the trade.” (a) expenses not incurred wholly and exclusively for the purposes of the trade, or (b) losses not connected with or arising out of the trade.[25]By way of summary of my conclusions, I agree with the UT that the FTT made no error of law. The FTT relied on Scotts Atlantic for its uncontroversial summary of the principles derived from the leading cases and correctly applied those principles to the facts of the case. It did not compare those facts to those of Scotts Atlantic, but nor should it have done. The question of the correctness or otherwise of the actual decision reached in Scotts Atlantic on the wholly and exclusively issue simply does not arise.[26]Scotts Atlantic concerned a scheme under which value was injected into an EBT via the creation of a company in which the employer subscribed a trivial number of shares at a very significant premium and then permitted the EBT to access the funds through the exercise of an option to subscribe additional shares at par, following which the company was liquidated and the funds were used by the EBT to make loans or distributions to the beneficiaries. The FTT’s decision to disallow the employer’s claim to a deduction was upheld by the UT on the basis that Schedule 24 to the Finance Act 2003, the precursor to s.1290 CTA 2009, applied. The UT’s consideration of HMRC’s alternative argument that the expenditure was not incurred wholly and exclusively for the purposes of the trade was therefore unnecessary to its decision (see at [43] and [44]).[27]Nevertheless (and conscious that it was a logically anterior question to the application of Schedule 24) the UT considered the point in some detail. HMRC’s case on that issue was that there was a duality of purpose, namely both to provide benefits to employees and to secure a tax deduction. It was common ground that securing a tax advantage was a purpose of the scheme.[28]The UT’s summary of the relevant principles at [50]-[55] of Scotts Atlantic is as follows: “50. First, ‘[a]s the taxpayer’s “object” in making the expenditure has to be found, it inevitably follows that (save in obvious cases which speak for themselves) the [FTT needs] to look into the taxpayer’s mind at the moment when the expenditure is made’ (Lord Brightman in Mallalieu v Drummond (Inspector of Taxes) [1983] STC 665 at 669, [1983] 2 AC 861 at 870).51. Secondly, in so doing, the object of the expenditure must be distinguished from its effect. If the sole object of the expenditure was the promotion of the business, the expenditure is deductible, even though it necessarily involves other consequences. Thus the existence of for example a private advantage does not necessarily mean that the expenditure is disallowable. As Millett LJ said in Vodafone CellularLtd v Shaw (Inspector of Taxes) [1997] STC 734 at 742, 69 TC 376 at 437: ‘The object of the taxpayer in making the payment must be distinguished from the effect of the payment. A payment may be made exclusively for the purposes of the trade even though it also secures a private benefit. This will be the case if the securing of the private benefit was not the object of the payment but merely a consequential and incidental effect of the payment.’52. Another way of phrasing this is that a merely incidental effect of expenditure is not necessarily an object of a taxpayer in making it. However, as Lord Brightman’s well-known example in Mallalieu (see [1983] STC 665 at 669, [1983] 2 AC 861 at 870) of the medical consultant going to the South of France to treat a friend shows, it may be the case that in fact what would be an incidental effect in some circumstances could be an independent object in others. What the FTT must not do is to conclude that merely because there was an effect, that effect was an object.53. Thirdly, ‘[s]ome results are so inevitably and inextricably involved in particular activities they cannot but be said to be a purpose of the activity’ (Lord Oliver in MacKinlay (Inspector of Taxes) v Arthur Young McClelland Moores & Co [1989] STC 898 at 905, [1990] 2 AC 239 at 255) and as a result the conscious motive of the taxpayer is not decisive: ‘it is of vital significance but is not the only object which the fact finding tribunal is entitled to find to exist’ (Lord Brightman in Mallalieu). Another way of putting that is that the FTT must take a robust approach to ascertaining the purposes of the taxpayer.54. There is one point to add: neither the statutory provision nor any of the cases indicate that the way in which an expense is incurred will determine whether the expense is deductible. The question is what is the object of the expense, not what was the object of the means of incurring it. But that is not to say that the means by which the expenditure is made cannot be one of the circumstances to be taken into account in determining its purpose.55. A trader may have a choice of the way in which it achieves an end which is exclusively for the benefit of the trade. The choice may be influenced, or indeed wholly determined, by the tax consequences of each choice. A taxpayer is perfectly entitled to order its affairs in a way which incurs the least tax liability. The mere fact that a choice is influenced or dictated by the tax consequences does not necessarily mean that the choice involves a duality of purpose as regards the expense. The words of Millett LJ are just as relevant and applicable where there is a choice as where there is not: in each case, the question is whether the payment is made exclusively for the purposes of the trade, and that is a question of fact for the FTT.” ‘The object of the taxpayer in making the payment must be distinguished from the effect of the payment. A payment may be made exclusively for the purposes of the trade even though it also secures a private benefit. This will be the case if the securing of the private benefit was not the object of the payment but merely a consequential and incidental effect of the payment.’[29]No serious objection can be taken to this summary, which was of course agreed by the parties in the FTT. The principles are well-settled. As discussed below, they were recently considered by this court in Marlborough DP Ltd v Revenue and Customs Comrs [2025] EWCA Civ 796, [2025] STC 1235 (“Marlborough”). Although our attention was not drawn to it, I should add that the leading cases have also recently been considered in detail by this court in the different context of the “unallowable purpose” rule in s.441 CTA 2009: see BlackRock Holdco 5, LLC vRevenue and Customs Comrs [2024] EWCA Civ 330, [2024] STC 740 (“BlackRock”) at [110]-[124]; the summary at [124] was also cited in JTI Acquisition Co (2011) Ltd vRevenue and Customs Comrs [2024] EWCA Civ 652, [2024] STC 1179 and Kwik-Fit Group Ltd vRevenue and Customs Comrs [2024] EWCA Civ 434, [2024] STC 897.[30]In Scotts Atlantic the UT held that the correct question to consider was the purpose of the expense rather than the purpose of the scheme (the scheme admittedly had a tax purpose). On the factual findings of the FTT in that case one of the purposes of the expenditure was to implement a pre-arranged scheme to obtain a tax deduction, and the FTT had been entitled to conclude that it was non-deductible.[31]In this case the UT correctly observed at [29] that the FTT did not compare or even refer to the factual matrix in Scotts Atlantic. Further, as it noted at [31], the reference in Scotts Atlantic at [67] to an “all-pervading object” of achieving a corporation tax deduction, on which the Appellants rely, was a reference to a finding by the FTT in that case which was subject to some criticism by the UT, rather than a correct description of the legal test to be applied.[32]The critical point in this case is the FTT’s conclusions on the facts, which I have already set out in detail. In short, they are fatal to the Appellants’ case. The FTT found that the UURBS was adopted as a tax saving scheme and the provision of pensions was “at best” an incidental aim. The FTT’s conclusion to that effect is unimpeachable. It was based among other things on the fact that there was no consideration of the provision of additional benefits before the UURBS proposal was presented by Charterhouse (the witness evidence on that issue having been rejected), the use of a percentage of profits irrespective of what those profits were, and the lack of genuine concern about the level of remuneration and pensions provision, such that there was no proper consideration of the appropriateness of the nature or level of benefit for the individuals (see [18] above). Mr Andrew Thornhill KC (for the Appellants) criticised the FTT for not considering whether the pensions provided for were needed or were reasonable in amount, but the FTT made its findings on the evidence that the Appellants put forward. It was up to the Appellants to establish their case, and they failed to do so.[33]It makes no difference that the UURBS was simple in concept and did not involve the level of artificiality that many tax avoidance schemes have, or that UURBS can be used as a perfectly legitimate method of making pension provision. What matters is the facts of this case. It is also irrelevant that (by the time the matter was litigated) some of the A D Bly pensions were in payment. No one is suggesting that the arrangements were a sham or that the provisions in the Appellants’ accounts were otherwise improperly made.[34]Although he did not purport to resile from the summary of the principles in Scotts Atlantic on which the FTT relied, Mr Thornhill in substance sought to do so by arguing that, at least in the context of employee remuneration and/or pensions provision, a tax avoidance purpose (as opposed to another non-trade purpose) could not prevent a deduction for any sum that was not shown to be excessive, at least unless it is found that the company’s object was an all-pervading one to reduce its corporation tax liability by any means that it could. Rather, he submitted that the tax deduction should be treated as no more than the natural consequence or effect of the expense. However, neither s.54 nor the authorities provide any authority for such a principle.[35]It is of course the case that traders will incur expenditure in the knowledge and expectation that it will be deductible for tax purposes, and indeed might not otherwise be prepared to incur the expenditure. Parliament cannot be taken to have intended by what is now s.54 CTA 2009 to prevent that consequence arising merely because tax was considered. As I said in BlackRock at [150] in the context of the unallowable purpose rules, something more is needed. But that does not mean that Mr Thornhill’s argument is correct.[36]In my view it was this point that Sir Launcelot Henderson was making in the part of his judgment in Hoey which includes a passage that was heavily relied upon by Mr Thornhill. Hoey concerned income tax assessments in relation to benefits that Mr Hoey and others had received from an EBT, but one of the issues considered was whether the employers’ contributions to the EBT were properly deductible as expenses of the trade. The legal principles were considered from [170], where there is a citation from the decision of Millett LJ in Vodafone Cellular Ltd v Shaw [1997] STC 734 (“Vodafone”). After noting at [171] that remuneration would not necessarily satisfy the wholly and exclusively rule, Sir Launcelot said:
“172. Nevertheless, where the remuneration paid to an employee is reasonable in amount, and the services in question were performed for the purposes of the employer’s trade, it is usually difficult to envisage circumstances in which deduction of the expenditure will not be allowable.”
[37]Having referred to MacKinlay v Arthur Young McClelland Moores & Co [1990] 2 AC 239, [1989] STC 898 (“MacKinlay”) and considered the decisions below, Sir Launcelot explained that HMRC had relied on duality of purpose, namely remuneration and tax avoidance ([191]), to deny a deduction and had also raised broader arguments about the tax avoidance context in which the employers’ trading activities were carried on. He noted at [193] that HMRC had not sought to argue that tax considerations so infected the activities that the employers were not trading for tax purposes at all (Lupton v FA & AB Ltd [1972] AC 634, 647), before saying this:
“194. Furthermore, once the existence of a trade is recognised, the mere fact that a transaction is entered into with a fiscal motive does not, in the normal way, denature it or mean that it is infected by a duality of purpose which makes expenditure on it non-deductible. At times, HMRC’s arguments seemed to come close to suggesting that the courts should recognise a general principle that the existence of a tax avoidance motive which is more than purely incidental must give rise to a duality of purpose which means that the wholly and exclusively rule cannot be satisfied. Any such principle, if it existed, would have very far-reaching implications, and would be contrary to many statements in the case law that the existence of a fiscal motive is generally irrelevant in answering the objective question whether there is a trade: see, for example, Ingenious Games [2022] 2All ER 338, para 64, where the court referred to ‘the general irrelevance of fiscal motive in answering the objective question whether the transaction viewed as a whole constitutes a trade’.”
It is this passage on which Mr Thornhill particularly relies.[38]Sir Launcelot proceeded to consider Interfish Ltd v Revenue and Customs Comrs [2014] EWCA Civ 876,[2015] STC 55 and MacKinlay, concluding that the amounts received from the EBT were part of Mr Hoey’s agreed remuneration package, and no distinction could be drawn between those amounts and his salary, which was admittedly deductible. The existence of an ulterior motive of helping Mr Hoey to engage in a tax avoidance scheme did not amount to a separate object. Rather, it was a “a consequential and incidental effect of the payment” as referred to by Millett LJ in Vodafone. As Lord Oliver had said in MacKinlay at p.254, anything paid by way of remuneration for acting as an employee “cannot easily fail to be deductible as an expenditure exclusively for the purpose of the firm’s business”. There was a “strong prima facie inference” that the payments to the EBTs in respect of Mr Hoey’s services were deductible, and HMRC had not discharged the evidential burden on them to displace that inference (see Hoey at [198]). In any event the FTT was entitled to have reached the conclusion that it did to that effect ([199]).[39]As Sir Launcelot explained, amounts paid to remunerate employees will in the ordinary course be deductible. I would add that the same must apply to the provision of pensions, subject to the application of special rules which can govern the timing of deduction (see further below). But the fundamental reason why expenses incurred to remunerate employees are deductible is that the object is indeed to remunerate them for their services. If that is the object, the mere fact that it is sought to be achieved in a way that avoids tax will not prevent a deduction being obtained. That may either be on the basis that it is not sufficient that the particular means chosen to achieve the object is driven by tax considerations (see Scotts Atlantic at [55]), or (as was the case in Hoey) because tax avoidance is not found to be an object or purpose of the taxpayers at all. In contrast, in this case the FTT made a clear finding that the real driver was not pension provision but tax saving, such that the provision of pension benefits was at most an incidental aim. This was not simply a choice of a tax-efficient method of making pension provision, and the strong prima facie inference referred to in Hoey was convincingly displaced on the facts. It was also not a case of confusing object with effect, as Mr Thornhill suggested the FTT had done. The FTT and UT had the distinction well in mind.[40]The Appellants are also not assisted by the comments of Lord Cross in Kilmorie, 50 TC 1, 100, on which Mr Thornhill relied. There Lord Cross gave an example of a retailer who is in the habit of buying articles from a wholesaler for £10 (a commercial price) but chooses to buy them instead from his son-in-law, who has also set up a wholesale business, at the same price. One of the purposes of transacting with the son-in-law is to assist him, but the expenditure is still deductible. The position would be different if an inflated price was paid.[41]The reason this does not help the Appellants is that the retailer requires the items for his business. That is his object in acquiring them. He is simply entitled to achieve that object by buying them from his son-in-law instead of the other wholesaler. The purpose of choosing the particular means of acquiring the goods was to help his son-in-law, but it was no more than that. It is not, in truth, duality of purpose as to the object of the expenditure at all.[42]The recent decision in Marlborough provides another example of the application of the well-established principles. That case concerned a dental practice operated by a Dr Thomas through a corporate entity. The company used a marketed tax scheme involving the contribution of its profits to a trust and the onward provision of loans to Dr Thomas. In that case the UT held that the FTT erred in its view that the contributions to the trust were deductible because on the facts found it was impossible to conclude that they were. The UT’s decision was upheld by this court.[43]Singh LJ referred to Mallalieu v Drummond, MacKinlay and also Scotts Atlantic (see at [98]-[106]) before considering the parties’ arguments. At [112] he noted a possible tension between Millett LJ’s statement in Vodafone that the question of whether expenditure is incurred wholly and exclusively for the purposes of the trade is one of fact and comments made by Rose LJ in Investec Asset Finance plc v Revenue and Customs Comrs [2020] EWCA Civ 579, [2020] STC 1293 at [42]-[46], but found it unnecessary to resolve that. As the UT had observed, Dr Thomas’s own evidence was that contributions were made in the amounts required to reduce the profits to nil. The twin objectives of the scheme were to empty the company of profit and to advance it to Dr Thomas by way of non-taxable loan. There was no purpose of benefiting the trade, rather the purpose was tax avoidance, which was an end in itself (see at [27] and [122]).[44]Similarly in this case, on the facts found by the FTT it was certainly entitled, if not bound, to conclude that the provisions made by A D Bly and CHR were not deductible, because at least the principal purpose of their creation was tax avoidance.[45]Finally, to the extent that Mr Thornhill relied on a deliberate policy choice of the legislature to incentivise pension provision through tax benefits, that also does not assist the Appellants. In fact, I do not understand any of the provisions relevant to the deduction of employer pension contributions to disapply the wholly and exclusively requirement when determining deductibility: see in particular s.196 FA 2004 in relation to contributions to registered pension schemes and s.246 FA 2004, considered below.

Section 1290 CTA 2009

[46]The conclusion I have reached that the FTT, and so the UT, did not err in relation to the wholly and exclusively issue renders it strictly unnecessary to consider the Respondent’s Notice. However, given the broader implications of the points raised I will do so.[47]Sections 1290 and 1291 CTA 2009 relevantly provide: “1290. Employee benefit contributions(1) This section applies if, in calculating for corporation tax purposes the profits of a company (“the employer”) of a period of account, a deduction would otherwise be allowable for the period in respect of employee benefit contributions made or to be made…(2) No deduction is allowed for the contributions for the period except so far as— (a) qualifying benefits are provided, or qualifying expenses are paid, out of the contributions during the period or within 9 months from the end of it, or (b) if the making of the contributions is itself the provision of qualifying benefits, the contributions are made during the period or within 9 months from the end of it…(3) An amount disallowed under subsection (2) is allowed as a deduction for a subsequent period of account so far as— (a) qualifying benefits are provided out of the contributions before the end of the subsequent period, or (b) if the making of the contributions is itself the provision of qualifying benefits, the contributions are made before the end of the subsequent period… 1291. Making of “employee benefit contributions” (1) For the purposes of section 1290 an “employee benefit contribution” is made if, as a result of any act or omission— (a) property is held, or may be used, under an employee benefit scheme, or (b) there is an increase in the total value of property that is so held or may be so used (or a reduction in any liabilities under an employee benefit scheme). (2) For this purpose “employee benefit scheme” means a trust, scheme or other arrangement for the benefit of persons who are, or include, present or former employees of the employer…” (a) qualifying benefits are provided, or qualifying expenses are paid, out of the contributions during the period or within 9 months from the end of it, or (b) if the making of the contributions is itself the provision of qualifying benefits, the contributions are made during the period or within 9 months from the end of it… (a) qualifying benefits are provided out of the contributions before the end of the subsequent period, or (b) if the making of the contributions is itself the provision of qualifying benefits, the contributions are made before the end of the subsequent period… (a) property is held, or may be used, under an employee benefit scheme, or (b) there is an increase in the total value of property that is so held or may be so used (or a reduction in any liabilities under an employee benefit scheme).[48]As can be seen, s.1290 will operate to defer deductions for “employee benefit contributions” until the period when benefits are provided to employees, so achieving an alignment between the timing of the deduction and taxation in the hands of the recipient.[49]The relevant individuals in this case will not be taxed on any pensions from the UURBS unless and until they receive them, because the mere promise to pay does not create taxable income. HMRC maintain that the purpose of s.1290 is to prevent a deduction in those circumstances, and that ss.1290 and 1291 should be interpreted to give effect to that purpose. HMRC say that the UT’s decision that the UURBS was not an “employee benefit scheme” on the ground that “trust, scheme or other arrangement” (see s.1291(2)) is limited to a trust or similar arrangement is too narrow an interpretation. They also maintain that the UT erred in holding that the UURBS did not give rise to an “employee benefit contribution” within s.1291(1), because it is not an abuse of language to say that the binding promise to pay a pension was “held, or may be used, under” the scheme. Further, the UT wrongly disregarded the fact that the concept of “employee benefit contribution” does not require a payment or transfer of property, wrongly applying NCL CA (see [20] and [21] above).[50]I cannot accept HMRC’s arguments. The UURBS does not fall within s.1290 on any natural interpretation of that provision and s.1291. A consideration of the broader statutory context confirms the conclusion that s.1290 was not intended to apply in this situation.[51]The concept of “employee benefit contribution” is not directly defined, but s.1291(1) provides a complete description of when one is to be treated as made. It requires an “act or omission” as a result of which property is “is held, or may be used, under an employee benefit scheme”, or that there is an increase in value of property “so held” (or a reduction of liabilities).[52]Leaving to one side for a moment whether the UURBS is an employee benefit scheme, the references at paragraphs (a) and (b) of s.1291(1) connote some form of identifiable property (a “pot” of assets) that is made available for the purpose of the scheme, either by being created by the contribution or by its net value being increased. I do not accept that the reference to “property” can be read as extending to any of the company’s own assets, present or future, that might in due course be used to satisfy the unsecured liabilities under the UURBS. This is further supported by s.1290(2)(a), which refers to providing benefits “out of” the contributions.[53]I also do not agree with the alternative submission of Ms Rebecca Murray (for HMRC) that the relevant “property” was the chose in action held by the employees in the form of their rights under the UURBS. It is not a natural use of language to describe those rights as property held “under” the scheme, particularly when the word “held” is read in its context “held, or may be used, under”, still less would it be natural to apply the label “employee benefit contributions” to the creation of such property. They represent the employee’s rights in or against the scheme, not the employer’s contributions. As David Richards LJ said in NCL CA at [77]:
“‘Employee benefit contributions’ is not an empty vessel or algebraic symbol, dependent wholly on section 1291(1) for any meaning.”
[54]As to whether the UURBS is an “employee benefit scheme” within s.1291(2), while I agree that the concept of “arrangement” may be broad it must be read in its context. As Lord Hamblen and Lady Rose said in NCL SC at [72]:
“The term ‘other arrangement’ must be something akin to a trust or scheme…”
[55]While in NCL it was common ground that the EBT that granted the options in question was an employee benefit scheme (see NCL CA at [71]), the options were held by the Supreme Court not by themselves to be such a scheme. Similarly, what HMRC rely on here are the contractual promises made to the individual employees, in respect of which the accounting provisions were made. There was no broader trust or scheme that existed apart from those contractual undertakings. Those promises are not, even in combination with each other, akin to a trust or scheme.[56]HMRC criticise the UT’s reliance on NCL, in particular NCL CA. Ms Murray pointed out that in NCL the grant of the options was itself a taxable emolument in the hands of the employees, albeit in fact one benefiting from a statutory exemption (see NCL SC at [61])), whereas in this case the pension promise was not taxable. That is so and it is also true that the Supreme Court referred to the fact that the options comprised emoluments in concluding that s.1290 did not apply: see at [70]. But it does not follow that the UT was not entitled to have regard to aspects of the reasoning in NCL which do apply in this case.[57]In particular, the reasoning of David Richards LJ in NCL CA at [67]-[78], including his approval of the FTT’s decision in that case, is illuminating and I have drawn from it. As the UT observed, NCL SC included a general endorsement of the reasoning below at [19] and I do not detect that this section of the Court of Appeal’s judgments was disapproved (see also at [67], referring to the Court of Appeal’s reasoning on this issue). Further, aspects of the Supreme Court’s decision provide additional assistance and guidance, in particular the citation of part of the FTT’s reasoning at [66], the reference to the options not being “held” by the employees under the employee benefit scheme at [70] and the point already referred to at [72] about the term “other arrangement”. It is also worth noting the Supreme Court’s refusal at [73] to accept HMRC’s broader policy-based argument:
“We do not accept [Counsel for HMRC’s] description of sections 1290-1297 as a statutory code aimed at ensuring that relief for employee benefit contributions is only available if and when matched by a corresponding charge to income tax and national insurance contributions.”
While Lord Hamblen and Lady Rose went on to refer to the specific exemption that led to the grant of the options not being taxable in that case, the general point applies, namely that the legislative code does not contain an overarching rule that deduction and taxation must be aligned in all cases.[58]Ms Murray also sought to rely on Explanatory Notes to clause 232 of the Finance Bill 2004, which became s.245 FA 2004 and which amended the immediate predecessor to s.1290 in Schedule 24 to the Finance Act 2003. I do not read those notes as providing any assistance about the treatment of unfunded pension arrangements, even if the notes are proper aids to interpretation. As to whether they are, as explained most recently in Alexander Beard vRevenue and Customs Comrs [2025] EWCA Civ 385, [2025] 3 WLR 645 at [64]-[68], legislation such as the CTA 2009 which is the product of the Tax Law Rewrite Project should generally be interpreted using the approach adopted to consolidation statutes, without referring back to legislative antecedents. This is subject to a point about earlier case law, but that is not in issue here. The difficulties are well-illustrated in this case by the point that s.245 FA 2004 was not the last legislative word on the topic before s.1290 was introduced, since material amendments were made by the Finance Act 2007.[59]In fact, however, there is a provision of FA 2004 which (unlike s.245) does remain operative and which provides additional support for the conclusion that I have reached, namely that s.1290 is not apt to cover unfunded arrangements such as the UURBS. This is s.246 FA 2004, which provides as follows: “246. Restriction of deduction for non-contributory provision (1) This section applies in relation to an employer’s expenses of providing benefits to or in respect of present or former employees under an employer-financed retirement benefits scheme in a case where— (a) the expenses do not consist of the making of contributions under the scheme, but (b) in accordance with generally accepted accounting practice they are shown in the employer’s accounts… (a) the expenses do not consist of the making of contributions under the scheme, but (b) in accordance with generally accepted accounting practice they are shown in the employer’s accounts…[60]The provisions that follow, s.246(2)-(4), deny deductions unless the benefits will be subject to income tax on receipt, and if they are so deductible defer deductions until the benefits are paid. They also define “employer-financed retirement benefits scheme” by reference to s.393A of the Income Tax (Earnings and Pensions) Act 2003 (“ITEPA”). It is common ground that the UURBS do not fall within that definition because they do not provide “relevant benefits” as defined in s.393B of ITEPA. This is because any pensions paid will be taxable under Part 9 of ITEPA (pension income), and such amounts are excluded from the otherwise broad definition of “relevant benefits”.[61]Section 246 obviously immediately followed s.245. It is also worth noting the contrasting headings. Section 245 was headed “Restriction of deduction for contributions by employer”, whereas s.246 is headed “Restriction of deduction for non-contributory provision”.[62]The fact that s.246(1) FA 2004, a provision which continues in force, appears entirely apt to describe what occurred in this case provides further support for the conclusion that HMRC’s attempt to read s.1290 as covering the circumstances of this case should be rejected. Parliament clearly intended s.246 to govern unfunded arrangements (that is, “non-contributory provision”), in contrast to what is now s.1290. The fact that s.246 does not apply where the benefits are taxable under Part 9 of ITEPA can only reflect a deliberate legislative choice.[63]Ms Murray suggested that the use of s.246 to inform the scope of s.1290 was a new point, and those instructing her at the hearing were also unable to provide us with any assistance on what HMRC say that s.246 is intended to achieve. I do not accept that HMRC had no reason to prepare for the point. Section 246 was in the authorities bundle, had been relied on by the taxpayers before the FTT and was referred to in HMRC’s own skeleton argument for this appeal. Even if the Appellants had not relied on it in this court we would have had to consider it.

Conclusion

[64]In conclusion, I would dismiss the appeal. The UT correctly upheld the FTT’s decision that deductions for the provisions in the Appellants’ accounts were disallowed by s.54 CTA 2009. If it were necessary to decide the point, I would also conclude that HMRC’s attempt in the alternative to rely on s.1290 would fail.[65]I agree.[66]I also agree.