In Macleod and Mitchell Contractors Limited and William Mitchell v HMRC [2019] UKUT46 the Upper Tribunal (UT) found that insurance premiums paid by a company where the contracts were in a director’s name were not taxable as earnings.

The taxpayer was the sole director and shareholder of the company.

  • Several insurance policies relating to the director were taken out in his own name but the company paid the premiums.
  • The director claimed that it was the intention that these would be in the company name, but their adviser had made an error, arranging for the contracts to be put in the directors name.
  • Shortly after the error was discovered the policies were assigned to the company.
  • The First Tier Tribunal (FTT) found that the premiums were subject to PAYE and NIC as earnings; the company had not sought recompense from the director on discovering the error and so had made a decision to meet a pecuniary liability of the director.
  • The taxpayer appealed.

The UT allowed the appeal and held that the FTT had erred in law by failing to focus correctly on the critical questions: whether there was any real benefit to Mr Mitchell from the payment of the premiums; and, if there was, whether it arose from his employment.

The UT view was that:

  • The premium payments were not intended to be a reward or remuneration for the director’s services; the intention was to benefit the company, therefore the premiums were not earnings from the director’s office or employment
  • As a director Mr Mitchell had a fiduciary duty to remedy the error by assigning the policies to the company.
  • There was no right for the company to recover the premiums from Mr Mitchell as it knew that there had been a mistake and that Mr Mitchell was not the rightful owner of the policies; there was no pecuniary liability being settled by the company but even if there had been it was not reward or remuneration for Mr Mitchell's services. 

Links to our guides:

Insurance: deductions and receipts

Death-in-service

Pecuniary Liabilities

Directors tax planning toolkit 2018/19

External links:

Macleod and Mitchell Contractors Limited and William Mitchell v HMRC [2019] UKUT46

FTT decision: William Mitchell & Mitchell and Mitchell Contractors Limited v HMRC [2017] TC 05633

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