“(c) it is reasonable to suppose that, in essence— (i) the relevant arrangement, or (ii) the relevant arrangement so far as it covers or relates to A, is (wholly or partly) a means of providing, or is otherwise concerned (wholly or partly) with the provision of, rewards or recognition or loans in connection with A's employment, or former or prospective employment, with B,” (i) the relevant arrangement, or (ii) the relevant arrangement so far as it covers or relates to A, is (wholly or partly) a means of providing, or is otherwise concerned (wholly or partly) with the provision of, rewards or recognition or loans in connection with A's employment, or former or prospective employment, with B,”
“147. The FTT’s reasoning in the key passage at [137] is very compressed and could usefully have benefited from greater elaboration. However, in our view, the FTT at [137] did not state, as HMRC contended, that the test contained in section 554A(1)(c) ITEPA (“connected with A’s employment”) was the same as that found in sections 10 and 62 ITEPA i.e. “from” employment. What the FTT said was that the employment “must be part of the reason for the reward”
“149. In the present case, Dr Thomas, acting as the director of MDPL resolved to make contributions to the RT. Shortly thereafter, Dr Thomas would write to BTIL on MDPL headed paper asking it to consider advancing a loan to him. A loan would subsequently be made by the RT, via MTL as nominee for the Trustees, to Dr Thomas. In our view, that, of itself, is an insufficient degree of connection to Dr Thomas’ directorship for the loans to be regarded as made in connection with that office. A company can only act through the agency of its directors and employees, unless it acts in general meeting. We consider that resolving to make the contribution and requesting the loan were not sufficiently closely connected with Dr Thomas’ directorship to cause section 554A(1)(c) ITEPA to be engaged. 150. The profits of MDPL, paid as contributions to the RT and then on-lent to Dr Thomas, reflected the profits of the dental practice carried on by MDPL. Dr Thomas was actively engaged in the practice as a dentist and was assisted by a hygienist and an associate dentist (see [52]). At all material times, Dr Thomas was the sole director of MDPL and, therefore, the guiding mind of the company solely responsible for the conduct and direction of its business from which the profits were derived. In our view, this is a sufficiently direct and close connection with Dr Thomas’ directorship (treated by section 5 ITEPA as an employment) to ensure that section 554A(1)(c) applied. We are satisfied that treating the profits of MDPL contributed to the RT and on lent to Dr Thomas as connected with his directorship accurately reflects the essence of the overall arrangement. 151. We have therefore come to the conclusion that the loans from the RT to Dr Thomas were connected with his employment/directorship for the purposes of section 554A(1)(c) ITEPA. 152. We therefore allow HMRC’s appeal on Ground 1.”
“49. I wish to add a few words to deprecate the practice which was adopted in this case of counsel writing to the judge, after a draft judgment has been provided, to ask him to reconsider his conclusions. It is a growing practice and in my view it should happen only in exceptional circumstances. 50. The purpose of the judge providing a draft of the judgment before hand down is to enable the parties to spot typographical, spelling and minor factual errors which have escaped the judge's eye. It is also to give the parties the opportunity to attempt to reach agreement on costs and to consider whether they wish to appeal. Consideration of such matters before hand down can save costs. Circulation of the draft is not intended to provide counsel with an opportunity to re-argue the issues in the case. 51. Only in the most exceptional circumstances is it appropriate to ask the judge to reconsider a point of substance. Those circumstances might be, for example, where counsel feels that the judge had not given adequate reasons for some aspect of his/her decision. Then it may be appropriate to send a courteous note to the judge asking him/her to explain the reasons more fully. By way of further example, if the judge has decided the case on a point which was not properly argued or has relied on an authority which was not considered, the appropriate course will be to ask him/her either to reconvene for further argument or to receive written submissions from both sides. Letters such as the one sent in this case, which sought to reopen the argument on a wide variety of points, should not be sent.”
“[14] The first point to make is that, at least as a matter of principle, a judge is entitled to take such a course. After all, a judge must decide a case according to the facts and the law as he believes them to be. Accordingly, subject to any particular reason to the contrary in the particular case, there is no reason for objecting in principle to a judge taking such a course. [15] Secondly, however, there may be particular reasons why such a course is not open to the judge in a particular case. For instance, the course he wishes to take may not be open on the pleadings, or it may be precluded by virtue of a concession which has not been, or cannot be, withdrawn. Equally, a finding of primary fact, or even a finding of secondary fact or an assessment of a witness or expert evidence, may simply not, on analysis, be open to the judge on the evidence before him. [16] Thirdly, whether or not the point turns out to be open to the judge, it is clear that, save perhaps in very exceptional circumstances (which I find it very hard to envisage), he must ensure that the parties are given a fair opportunity to deal with the point. If the point is, on analysis, a bad one, it is fairer to the parties and less embarrassing for the judge that this is established before the judgment is available, rather than the parties either having a hearing at which the judge has to withdraw or amend the judgment or suffering the delay and expense of an appeal. [17] But there is an even more important reason for the requirement that the parties are given a proper opportunity to deal with the judge's point, namely procedural fairness. It is simply unfair on a party if she loses a case because of a point thought up by the judge, which she or her representatives have not properly been able to address. In this case, a major factor which (if I may say so, correctly) influenced Mummery LJ when giving the Defendant permission to appeal, was that her representatives stated that they had not been given a proper opportunity of dealing with the two reasons advanced by the Judge for holding that the 1983 Act did not apply. [18] How a judge ensures that parties have an opportunity to deal with a point which he has thought of must depend on the circumstances. If the point occurs to him before or during the hearing, he should obviously raise it in court in clear terms with the parties, ideally ensuring that it is reduced to writing, and give the parties a fair opportunity to deal with it. Sometimes it can be fully disposed of at the hearing; on other occasions, it may be only fair to give the parties time, and subsequent written submissions may be the appropriate course. If the point occurs to the judge after the hearing, it would, I think, normally be sufficient if he writes to the parties or their representatives, giving them the opportunity of dealing with the point in written submissions (sometimes with the opportunity for counter-submissions). Occasionally, a further hearing may be appropriate, but it would normally be disproportionate.”
“[19] Where (as here) the judge's point is crucial in the sense that, without it, the decision would be different, it is obviously of particular importance that the parties are given a full opportunity to deal with it. Where the point represents a further reason to those which have been advanced and accepted by the judge as reasons for finding for the successful party, it would still normally be fair and sensible to give the parties an opportunity to deal with it, but, in such a case, a relatively short procedure may be justifiable.”
“1. Rule one for any judge dealing with a case is that, before you make an order requested by one party, you must give the other party a chance to object. Sometimes a decision needs to be made before it is practicable to do this. Then you must do the next best thing, which is - if you make the order sought - to give the other party an opportunity to argue that the order should be set aside or varied. What is always unfair is to make a final order, only capable of correction on appeal, after hearing only from the party who wants you to make the order without allowing the other party to say why the order should not be made.” “31. First and foremost, to deny the party adversely affected by an order any opportunity to say why the order should not be made is patently unfair. It is contrary to what I referred to at the start of this judgment as rule one for judges.”
“60. The Respondent submits that the FTT applied the correct test and did not “ignore evidence”
“So with that background in mind, I turn to my submissions on part 7A in this case. As I say at paragraph 60, our submission is the FTT applied the correct test, did not ignore evidence, and even if it should have applied a different test, this tribunal cannot conclude it would have been satisfied.”
“[69] These cases show that the meaning of "on, or in connection with" is heavily dependent both on context and policy. The phrase might require what Robert Walker LJ in Coventry Waste referred to as "a strong and close nexus" or it might require "a weak and loose one". Ben-Odeco v Powlson introduces the concept of remoteness, which is another way of considering the same question.”
“…loans where the relationship between the loan and the employment was merely incidental or peripheral – merely part of the background, so to speak.”
“We reach a similar conclusion, in my submission, when we apply the concept of essence. The essence of this arrangement was to deliver the company’s profits to its shareholder in a way it believed to avoid tax. That’s the essence. Without those elements, it’s not the same arrangement.”
“112. HMRC’s argument based on the source, for the company, of the profit is contrary to the FTT’s findings of fact and wrong. 112.1. On the FTT’s findings of fact, the arrangement was concerned only with the profit, not the source of the profit (see above, §44 and FTT, §41(2)). The arrangement did apply and would have applied to the profit irrespective of the source of the profit. There is no basis for dissecting the sums – they had a single character. 112.2. By HMRC’s logic, anything a company does with the profit of the business is connected with the director’s employment – dividend, charitable donation, etc. 112.3. Attributing the income generated by other staff to the director of the company dilutes the relevant concept to such an extent that it is meaningless. By that logic, one can attribute the work/income generation of any employee to their manager, and their manager’s manager and so on all the way up the corporate pyramid. Notably, on the present facts, it means that the loans were in connection with the employment of every employee of the Respondent. That plainly cannot be the intended test. 112.4. Further, if the source of the funds used to make a payment means the payment can be connected with employment, it would follow that distributions on a winding up of a close company are connected with the termination of the directors’ employments (as director) and thus within ITEPA, s.401 (rather than within the capital gains tax regime). Nobody, including HMRC, believes that to be the case. 112.5. HMRC’s argument was that “taking it as profits and then declaring and paying a dividend would have severed this connection” (HMRC FTT Skeleton, §94 [2112]), but it is clear that the mechanism used does not change the character of the payment.” 112.1. On the FTT’s findings of fact, the arrangement was concerned only with the profit, not the source of the profit (see above, §44 and FTT, §41(2)). The arrangement did apply and would have applied to the profit irrespective of the source of the profit. There is no basis for dissecting the sums – they had a single character. 112.2. By HMRC’s logic, anything a company does with the profit of the business is connected with the director’s employment – dividend, charitable donation, etc. 112.3. Attributing the income generated by other staff to the director of the company dilutes the relevant concept to such an extent that it is meaningless. By that logic, one can attribute the work/income generation of any employee to their manager, and their manager’s manager and so on all the way up the corporate pyramid. Notably, on the present facts, it means that the loans were in connection with the employment of every employee of the Respondent. That plainly cannot be the intended test. 112.4. Further, if the source of the funds used to make a payment means the payment can be connected with employment, it would follow that distributions on a winding up of a close company are connected with the termination of the directors’ employments (as director) and thus within ITEPA, s.401 (rather than within the capital gains tax regime). Nobody, including HMRC, believes that to be the case. 112.5. HMRC’s argument was that “taking it as profits and then declaring and paying a dividend would have severed this connection” (HMRC FTT Skeleton, §94 [2112]), but it is clear that the mechanism used does not change the character of the payment.”
“36. Fourth, HMRC say that the FTT “was focused on whether the payments made…were distributions made ‘in respect of shares’” (§53). That is a severe mischaracterisation of the FTT’s analysis. The UT is invited to re-read §§127 – 131. The FTT was plainly considering whether the payments had an employment or a non-employment source (as it said it would, at §128). Given that the non-employment source suggested by the Respondent was Dr Thomas’s being a shareholder, the FTT had to consider that [.] HMRC’s problem was that they had no real evidence to support their contention that there was an employment source (§129(1), §131, §131(5)(a)) and there was good evidence from Dr Thomas, accepted by the FTT, indicating that the purpose was to provide the sums to him as shareholder (§129(4)).”
“8.5. It is inaccurate to say that Dr Thomas was “solely responsible for the conduct and direction of” the business. As already referred to, the hygienist and associate dentist conducted their own respective parts of the business. Further, there was a practice manager who, logically, had responsibility for the conduct and direction of the business.”
“45. The FTT applied the wrong test, and did not take into account relevant evidence. HMRC submit that the UT should remake this decision, finding that the payments were within Part 7A. Should the UT not be so minded, this point should be remitted to a differently constituted FTT.”
“At all material times, Dr Thomas was the sole director of MDPL and, therefore, the guiding mind of the company solely responsible for the conduct and direction of its business from which the profits were derived.”