In Gain Capital Limited v HMRC [2023] TC8703, the First Tier Tribunal (FTT) dismissed an appeal against Regulation 80 determinations totalling £2.6m in respect of gifts made to former employees: they were taxable as earnings.

  • In 2007 and 2008, Mr Hambury and Mr Cooke ('the Individuals') subscribed for Shares in their Employer, these subscriptions were funded by Loans from a group company.
  • They left the employment of Gain Capital Limited ('GC') in 2011 and 2010 respectively.
  • The shares owned by the Individuals plummeted in value due to market conditions.
  • The value of the loans greatly exceeded the value of the shares.
  • The Individuals, entered into call option agreements with their former employer, with the effect of removing their personal liabilities in respect of the loans.
  • In advance of the 2014 sale of the former employer the call option agreements were replaced with further agreements which resulted in:
    • The shares being repurchased from the Individuals for their market value (albeit a nominal amount).
    • Gifts totalling £6m being made to the Individuals.
    • The £6m gifts to the individuals being used to repay the loans.
    • Indemnifying the Individuals from any tax charge that may arise on the gift.
  • HMRC issued Regulation 80 Notices totalling £2.6m on the basis that these gifts constituted earnings.
  • GC appealed on the basis that while the gifts were to former employees, they were not made in that capacity. They were made to address a commercial need to settle these contingent liabilities as a result of the indemnities that it had given the individuals.

The FTT found that:

  • The burden of proof lay with GC to show the gifts were not earnings.
  • The terms of the call option in 2011 reflected the time the individuals were employed as:
    • Restrictive covenants in favour of the former employer were entered into at that time.
    • The call option agreement reflected the initial desire of the employer to remunerate the individuals and they removed the personal liabilities attached to the loans which were no longer balanced by the value of the shares.
    • The generosity to make share purchases and associated loans economically neutral, was a reflection of the individual’s service while employed.
  • The 2014 agreements were made to unwind and honour the 2011 call options to allow the sale of the former employer to GC. This linked the 2014 agreement back to employment.
    • The ‘gifts’ as a result of the 2014 Framework Agreement were not payments for the release of an indemnity given as part of the 2011 call option agreement, as they resulted in a new indemnity from another entity within the corporate group. They related to the prior employment.
  • The full amount of the gifts were taxable as earnings and PAYE should have been applied.

The appeal was dismissed.

Useful guides on this topic

Regulation of PAYE: Regulation 80 and 72 assessments for PAYE
When can HMRC assess an employer or an employee for unpaid Pay-As-You-Earn (PAYE) and National Insurance Contributions (NICs)? What is a regulation 80 determination? What is a regulation 72 determination? Who is assessed and what are the conditions?

Employee Shares: Employment-Related Securities and Share Schemes
What are the tax consequences when a company gives shares to an employee or director? What are employment-related securities? What is best: shares or share options? How do you set up a share scheme?

Loans: Employment-related (freeview)
What is an employment-related loan? What are the tax and benefit-in-kind implications? Which loans are exempt? How is the value of any benefit calculated? What needs to be considered if the loan is made to a shareholder? 

Golden handshakes, signing on fees and unusual payments
How are golden handshakes, signing-on fees and unusual payments taxed?

External links

Gain Capital Limited v HMRC [2023] TC8703


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