In Delpha Derivatives Limited v HMRC [2023] TC8912, the First Tier Tribunal (FTT) dismissed an appeal against penalties for inaccuracies in PAYE returns for contributions to an Employee Benefit Trust (EBT). The taxpayer had acted carelessly initially, and then deliberately, by continuing to contribute after HMRC had already opened an enquiry into the scheme as well as issuing a Spotlight about their views on the scheme.

In 2008 Delpha Derivatives Limited (Delpha) entered into an Employee Benefit Trust (EBT) scheme promoted by Clavis Tax Solutions Limited. This involved employer contributions to the EBT which were allocated to sub-trusts for the benefit of employees, such as by making loans to them. The scheme was supported by Counsel's opinion.

  • Delphi made contributions to the EBT in four tranches which were allocated to sub-trusts for employees shortly afterwards. One contribution was made in its 2008 accounting period and three in the accounting period to 30 June 2009, with the final contribution being accounted for on an accruals basis as it was made after the end of the 2009 accounting period, in late 2009.
  • It claimed a Corporation Tax (CT) deduction for each contribution.
  • At the time that Delphi entered into the scheme, it was common practice for EBT contribution amounts to be set in advance, pending a final review by an independent Human Resources service provider as to the appropriate level of remuneration to be awarded to participating employees, and to claim a CT deduction for EBT contributions on the accruals basis. Delphi failed to have a review undertaken before it paid the final tranch into the EBT in 2009.
  • HMRC opened enquiries into the Corporation Tax returns for the two years ended 30 June 2009, in September 2009 for the 2008 return and in January 2011 for the 2009 return.
  • In September 2017, Delphi reached a settlement with HMRC on the scheme whereby it agreed to pay Income Tax and employer’s National Insurance Contributions (NICs) due under PAYE on the amounts contributed to the EBT, plus Inheritance Tax on the winding up of the trust, and so the CT deductions were allowed to stand.
  • HMRC separately issued penalty determinations for inaccuracies in PAYE returns which treated the fourth contribution to the EBT (made in November/December 2009) as Deliberate behaviour, whilst the first three tranches (paid in 2008 and February 2009) were treated as Careless behaviour. The penalties totalled £1,572,260.
  • Delphi Appealed to HMRC and a review upheld the penalties so they appealed to the tribunal.

The FTT dismissed the appeal and the penalties stood:

  • Delphi had not proved that there was a prevailing practice in 2008-09 and 2009-10 for it to take a CT deduction whilst at the same time avoiding PAYE and NICs.
  • Delphi had acted as a reasonably prudent taxpayer in taking advice about the scheme from a competent professional, but in failing to take any action following his advice about the risks of entering into the scheme, it fell short of the standard. It had failed to take reasonable care to avoid inaccuracies in its PAYE returns with respect to all tranches paid to the EBT.
  • The inaccuracy in relation to tranche 4 was deliberate. At the point this was paid in November/December 2009 HMRC had already opened an enquiry for the accounting period ended 30 June 2008. HMRC had also, in August 2009, published a Spotlight which set out their views on the tax position for the type of arrangement entered into by Delphi. This clearly stated that HMRC's view was that at the time funds are allocated to an employee or their beneficiaries (via a sub-trust) those funds become earnings on which PAYE and NICs are due and should be accounted for by the employer. Unlike for the other tranches Delphi had not ensured an independent review before making the fourth payment and had instead changed the initial recommended amount for that contribution from £3m to £5.4m.


Many companies who entered into EBT planning at the same time as Delphi may think that because the scheme had counsel's opinion they would be protected from penalties. Here the taxpayer also took separate tax advice but even this did not protect them as they ignored it, going ahead with a final increased contribution despite HMRC enquiries. Companies which acted similarly who have not yet settled with HMRC should prepare for penalty assessments on a similar basis should they now decide to settle or lose their appeals against PAYE assessments at the tribunal.

Useful guides on this topic

Penalties: Deliberate Behaviour
What penalties apply to deliberate behaviour? What is deliberate behaviour?

Disguised remuneration loan charge
What is disguised remuneration? What is the loan charge? When does the loan charge apply? Will the loan charge affect me?

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

Delpha Derivatives Limited v HMRC [2023] TC8912 

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