Employees received shares

The taxpayer companies implemented a scheme to pay bonuses to employees without attracting income tax and National Insurance (NI) deductions.

The arrangement was made by awarding shares to the workers in specially formed subsidiaries which were then liquidated and the assets distributed to the employees.

The scheme took advantage of ITEPA 2003 part 7 Employment Income: Income and Exemptions Relating to Securities which provides that no liability to income tax arises on the acquisition of restricted employment-related security but tax is payable if a chargeable event takes place in relation to the security.

The disagreement between taxpayers and HMRC concerned whether the staff members should be regarded as having acquired money rather than shares. The tax department said tax and NI was due on the assets received.

The First-tier Tribunal dismissed the companies’ appeal finding that the end result of the scheme was preordained...