Claim to recharacterise payments to directors as distributions

Chalcot Training applied to set aside a tax avoidance scheme (the Blackstar E share scheme) that it had implemented for its director shareholders on the grounds that the scheme was unlawful under company law.

It claimed that the transactions should be characterised as unlawful distributions to shareholders rather than remuneration to directors. Further they breached the Companies Act 2006 s 580 in relation the issue of shares at a discount and the payment of commissions. The company wanted to unwind the transactions so that it was in the position it would have been had the scheme never been entered into.

HMRC opposed this saying the company was bound by the transactions it had entered into and that they should be characterised in the way the company itself had characterised them at the time – as remuneration to its directors.

The judge noted that the case did...