In GW Martin & Co Ltd & Anor v HMRC [2025] TC09650, the First Tier Tribunal (FTT) found that payments made under a tax avoidance scheme were taxable as employment earnings under s.62 ITEPA 2003 and s.3 SSCBA 1992.
GW Martin & Co Ltd (GWM) and Quadrant Surveying Ltd (QSL) implemented a tax planning arrangement involving the issue of partly paid shares (E shares for GWM and P shares for QSL) to employees and directors.
- The scheme was marketed as a tax-efficient alternative to cash bonuses and was promoted by Blackstar (Europe) Ltd and Evolve Professional Services Ltd, respectively.
- Under the scheme:
- The employer made a payment to the employee.
- The employee used 1% of that payment to subscribe for new shares, with 99% of the nominal value uncalled.
- The remaining 99% of the payment was retained by the employee, subject to a contingent obligation to pay up the shares in limited circumstances (e.g. liquidation, cessation of employment or a call by the company).
- The companies claimed a Corporation Tax deduction for the payments and did not operate PAYE or account for National Insurance Contributions (NICs), on the basis that the payments were not earnings but capital in nature.
- HMRC issued Regulation 80 determinations and Section 8 decisions, asserting that the payments were Taxable earnings and subject to Class 1 NICs.
- HMRC argued that the scheme was a mechanism for delivering remuneration while avoiding PAYE and NICs, and that the payments fell squarely within the statutory definition of earnings.
The First Tier Tribunal (FTT) applied a purposive interpretation of s.62 ITEPA and s.3 SSCBA, following the approach in RFC 2012 plc v Advocate General for Scotland, W T Ramsay Ltd v IRC and Smyth v Stretton and found that:
- The payments were clearly earnings within the meaning of s.62 ITEPA; they were made as rewards for services and placed at the employee's disposal.
- The obligation to repay the uncalled amounts was a contingent liability, not a certainty. In practice, it was commercially irrelevant and unenforced.
- The use of a share subscription mechanism did not alter the character of the payments. The shares were a device to avoid tax, not a genuine investment.
- The argument that the value of the payments was nil should be rejected. The employees received substantial cash sums, and the supposed obligation to repay was not genuine.
- The scheme fell within the scope of the Ramsay principle: the composite transaction, viewed realistically, was a payment of earnings.
- The contingent liability was a commercially irrelevant feature inserted to avoid tax and could be disregarded.
Editor's comments
This decision is a warning against remuneration schemes that rely on artificial structures to recharacterise earnings. Key takeaways for tax advisers include:
- Payments made in recognition of employment services will be taxed as earnings, regardless of how they are structured.
- If repayment obligations are commercially irrelevant or unenforced, they will not prevent a tax charge.
- The FTT placed significant weight on board minutes, financial statements and scheme marketing materials.
- The decision confirms that 'Ramsay' applies to employment income and that courts will look at the overall effect of a scheme, not just its legal form.
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