In Tower Radio Limited, Total Property Support Services Limited v HMRC [2015] FTC/120/2013 a tax planning scheme designed to avoid income tax and NICs was found by the Upper Tax Tribunal (UTT) to succeed.

  • Senior employees were given shares in specially formed subsidiary companies (SPVs). These shares carried forfeiture provisions and due to these restrictions attaching to those shares they were restricted securities for the purpose of the employment related securities rules and there was no income tax or NICs liability on acquisition.
  • The SPVs were later liquidated. This occurred earlier than expected because there was a change in the law to end business asset taper relief.
  • At that time, liquidation is not a chargeable event in respect of employment related securities the amounts that the shareholders received on winding up were subject to capital gain tax and not income tax or NICs.

HMRC appealed successfully to the First Tier Tribunal which found that the Ramsay principle applied.

The taxpayers appealed to the UTT.

The UTT found that the employees had been awarded shares and not cash and became shareholders. There was flaw in ITEPA, as it stood during the relevant period in the limited list of “chargeable events” in combination with the absence of an anti-avoidance provision such as it now contains.

HMRC successfully appealed to the Court of Appeal in June 2016.


Part 7 ITEPA 2003 has now changed so this type of scheme will not work. There have been various similar cases before the courts over recent years which centred on the timing of voting of employee bonuses. In general terms if a salary bonus is voted, or agreed and then paid in shares and not cash, it may be expected to be taxed as earnings for tax and NICs. HMRC might have had a better chance of success in this particular case if it had used the transactions in securities rules.

Links: Upper Tax Tribunal decisoins: Tower Radio Limited and Total Property Support Limited