Payments are earnings

The taxpayer company entered into a complex arrangement to pay bonuses to its employees. The employer paid a capital contribution into employee benefit trusts out of which bonuses were paid to selected employees in the form of dividends.

HMRC said the payments should be taxed under Schedule E. The company appealed.

The First-tier Tribunal found that the payments should be treated as emoluments within TA 1988 s 19 (Schedule E) but that they were also dividends within TA 1988 s 20 (Schedule F).

However the payments were not chargeable to income tax under the Income Tax (PAYE) Regulations SI 2003 No 2682 Reg 80 but they were earnings for the purpose of National Insurance contributions.

The Upper Tribunal (Tax and Chancery Chamber)...