Three senior judges held that the scheme, worth £40,000 each to the directors, which was drawn up by DTE Financial Services Ltd (DTE), does not entitle the company to take the payments outside PAYE NI obligations.
Under the scheme, DTE provided directors, not with a cash payment of £40,000 each, but with a contingent reversionary interest under an offshore discretionary settlement. This then turned into an equivalent sum in cash shortly after it was made.
On that basis, DTE claimed it fell outside the PAYE system.
The Inland Revenue did not claim the transactions were shams. But it argued that, by adopting the approach of the House of Lords in W.T. Ramsey Ltd v IRC (1982)AC 300, the Court should hold that the arrangement be viewed as making payments which were subject to deduction of tax under PAYE.
Upholding the Revenue’s stance – and dismissing an appeal by DTE against an earlier High Court ruling also in the Revenue’s favour – Lord Justice Jonathan Parker said, for the purposes of the PAYE, payment ordinarily meant actual payment either by a transfer of cash or its equivalent.
‘In my judgment, therefore, the cash payments received were payments of assessable income within the meaning of section 203(1) of the Income and Corporation Taxes Act 1988,’ he said.
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