In Oco Ltd and Another v HMRC [2017] UK FTT payments from an EBT into sub trusts were found to be earnings under the Ramsay principle; there was no possibility that the loans from the sub trusts to employees would ever be repaid.

The appellants, Oco Ltd and Toughglaze Ltd had entered into a declaration of trust employee benefit scheme in 2005 and 2006:

  • The scheme was declared under DOTAS but was entered into before the Disguised remuneration rules were introduced.
  • Sums were paid by the companies into an Employee Benefit Trust (EBT) and corporation tax deductions claimed.
  • Amounts were settled on sub-trusts for employees and their families.
  • The trustees made interest free loans to company employees.
  • The loans were repayable on one months written months notice.
  • HMRC issued regulation 80 determinations to PAYE and section 8 decisions to NIC which were appealed.

The appellants argued that at no point earnings had been received

HMRC disagreed on three grounds:

  1. On the facts, the sums were the directors’ earnings before they become subject to the trust. The contribution to the EBT was thus a redirection of earnings (“the redirection argument”).

  2. Although HMRC did not allege sham they argued the discretionary trust was really a bare trust.

  3. Under the Ramsay approach, viewing the facts realistically and applying the legislation purposively, the appellants received “earnings” either when amounts were paid into the sub-trusts or when interest free loans were made to the directors; although the trustees’ powers were discretionary there was no realistic prospect of the discretion being exercised other than at the direction of the relevant director or; the loans were not real loans but unconditional payments and there was no practical likelihood the loans would ever have to be repaid unless the appellant wanted that to happen.

The FTT agreed with the third ground only; the loans were true loans but despite the trustees’ having discretion there was no doubt that the loans would be made and there was no realistic possibility the money lent would ever need to be repaid. The amounts, when viewed realistically under a Ramsay approach, were earnings. The PAYE determination and NIC decisions were upheld.


This is the first EBT case to be heard since the Rangers Supreme Court decision. Hundreds of other EBT cases under the same declaration of trust scheme are stood behind this case. It remains to be seen whether the appellants will appeal to the Upper Tribunal but given the amounts at stake for scheme users overall it seems likely.

External Links:

Oco Ltd and Another v HMRC [2017] UK FTT