In Strategic Branding Limited v HMRC [2021] TC08348, the First Tier Tribunal (FTT) found, contrary to a previous decision on the same tax scheme, that contributions to a remuneration trust were disguised remuneration taxable under Part 7A ITEPA. They were not deductible for Corporation Tax as they failed the wholly and exclusively test.

Strategic Branding Ltd entered into a complex remuneration trust structure designed by Baxendale Walker LLP:

  • Between 2012 and 2015 the company made contributions to the trust totalling £542,265 and the trust made loans to a company director, Mr Wilson, totalling £519,547.
  • Corporation Tax deductions were claimed by the company for the contributions as well as for fees paid to set up and run the scheme of £53,528.
  • Following enquiries, HMRC disallowed the Corporation Tax deductions and issued Discovery assessments spanning several accounting periods for unpaid Corporation Tax of £109,046.
  • HMRC also issued regulation 80 determinations and section 8 decisions for four tax years for PAYE and National Insurance Contributions (NICs) of £293,666 on the basis that either the arrangements resulted in a charge under the Part 7A ITEPA disguised remuneration rules or they were s.62 ITEPA earnings in line with the decision in the Rangers case.
  • Strategic Branding Appealed the amounts charged and also challenged the validity of the discovery assessments.

The FTT dismissed the appeal:

  • The discovery assessments were valid.
  • This was a marketed scheme on the basis that the company could claim a tax deduction and there would be no taxable receipts, and there was a pre-ordained set of transactions.
  • Mr Wilson was not a very credible witness and some of the loan documents were a sham.
  • The contributions to the trust:
    • Were not wholly and exclusively for the purposes of the trade so were not deductible for the company. The purpose of the payments was found to be to benefit Mr Wilson’s family i.e. for personal expenditure and to enable money to be spent on building relationships with suppliers.
    • The loans were in connection with Mr Wilson's employment and as such were taxable as income under Part 7A and not as earnings under s.62. Whilst there was a link between the payments and employment, HMRC had not established that the amounts were emoluments. They did however meet the conditions required for Part 7A to apply.


The scheme here was noted as being almost identical to that in the case of Marlborough DP Ltd. Also an FTT case, it was found there that the loans from the trust were distributions. Based on the facts the judge here chose not to follow the decision in Marlborough; she did not have to as FTT decisions are not binding precedent. In Marlborough it was argued by the taxpayer that the loans were distributions made as a return on his shareholding and the FTT agreed, finding that, on a narrow interpretation of the term, they were not 'in connection' with his employment and did not fall within Part 7A. In this case,the distribution argument was not advanced and the judge applied a wide interpretation of 'in connection with employment'. The difference for the individual taxpayers is National Insurance, payable by and for Mr Wilson but not by and for the director in the Marlborough case, although HMRC have now declared that they will be appealing Marlborough.

In several EBT cases, including Rangers which was also a Baxendale Walker scheme, the contributions were found to be s.62 employment income, although these all took place before the introduction of Part 7A in 2010. Corporation Tax deductions were allowed in each case, as the purpose of the contributions was found to be directors' remuneration. In other tribunal cases, including Stephen Hoey v HMRC and enquiry cases where they were aware that Baxendale Walker remuneration trust schemes had been used, HMRC have put forward the argument that the Transfer of Assets Abroad rules apply. This was not mentioned at all in the current case.

Until there is a new Upper Tribunal or higher court decision in this area it seems the position remains uncertain for these schemes and may continue to depend on the individual facts and grounds of appeal raised.

Useful guides on this topic

Disguised remuneration loan charge
How to settle up with HMRC in respect of any pay that has been disguised as loans 'disguised remuneration' and includes contractor loans and Employee Benefit Trust loans. 

Wholly and exclusively…toolkit
What does 'wholly and exclusively' mean? How do you determine if a cost is wholly and exclusively incurred for the purpose of a trade? What cases are there? 

Regulation 80 and 72 assessment for PAYE
When HMRC can assess a company or its owners for failure to deduct PAYE and NICs

Disguised remuneration 2020 settlement opportunity
What is HMRC's position on disguised remuneration loans where settlement was not reached by 30 September 2020? Can a settlement still be reached?

External link

Strategic Branding Limited v HMRC [2021] TC08348

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