In A D Bly Groundworks and Civil Engineering Limited and CHR Travel Limited v HMRC [2025] EWCA Civ 1443, the Court of Appeal (CoA) found that deductions for unfunded pension provisions were disallowable because the arrangements were primarily tax-driven rather than a genuine pension scheme.
- A D Bly Groundworks and Civil Engineering Ltd and CHR Travel Ltd (the appellants) were profitable businesses that entered into an Unfunded Unapproved Retirement Benefit Scheme (UURBS), provided by a promoter and registered under the Disclosure of Tax Avoidance Schemes (DOTAS) rules.
- Under the UURBS, the appellants promised to provide key employees with Pension payments in the future.
- The contributions to the UURBS were calculated by a third-party remuneration consultant based on the estimated pre-tax profits of the businesses for the year. The contributions were set at between 80% and 100% of those profits.
- The appellants each claimed a Corporation Tax deduction in respect of the contributions which totalled approximately £5m.
- HMRC disallowed the pension contributions on the basis that either:
- They were not incurred Wholly and exclusively for the purposes of the trade.
- As the contribution was unpaid and no benefits were provided from it, it was disallowable.
- The appellants appealed to the First Tier Tribunal (FTT), which dismissed the appeal.
The FTT found that the payments were not made wholly and exclusively for the purposes of the trade. The primary purpose of the payments was to reduce the appellants’ tax liabilities without incurring any actual expenditure.
The appeal was escalated to the Upper Tribunal (UT), which found that there was no error of law in the FTT's decision.
- The FTT had relied on Scotts Atlantic as a summary of the principles for expenditure 'wholly and exclusively' incurred. It had not 'fact matched' to that case and had made no error of law.
- The weight to be given to factors such as the failure to take pension advice was a matter for the FTT.
- HMRC argued that s.1290 CTA 2009 applied, relying on NCL Investments Ltd and another (NCL).
- The UT rejected this.
- The Supreme Court in NCL endorsed the Court of Appeal's (CoA's) reasoning that the wording of s.1290 was inadequate to cover unfunded pension promises like UURBSs.
- S.1290 did not disallow the deduction.
- The UT agreed with the FTT that the primary purpose of the arrangements was tax saving, not genuine pension provision. Provision of pensions was, at best, incidental.
The appeal was dismissed. Permission was granted to appeal to the CoA on two grounds:
- The FTT and UT failed to properly apply Scotts Atlantic.
- Alternatively, Scotts Atlantic was wrongly decided.
The CoA found that:
- The UT and FTT made no error of law.
- The FTT correctly applied the principles summarised in Scotts Atlantic and did not compare facts with that case (nor should it have).
- The FTT's factual findings were decisive:
- The UURBS was adopted primarily as a tax-saving scheme.
- Pension provision was at best an incidental aim.
- Evidence showed no genuine consideration of remuneration or pensions before Charterhouse proposed the scheme.
- The size of provisions was based on percentages of profits, not on employees' needs.
- The CoA rejected arguments that a tax avoidance purpose cannot prevent a deduction for remuneration/pensions unless excessive. No authority supported that principle.
- While tax efficiency is permissible, a tax avoidance purpose can defeat deductibility if it is the object of the expenditure.
- Although unnecessary to decide, the CoA addressed HMRC's alternative argument:
- S.1290 does not apply to unfunded pension promises like UURBSs.
- 'Employee benefit contributions' under s.1291 require identifiable property held under trust or similar scheme, not mere contractual promises.
- A UURBS is not 'akin to a trust or scheme' as required by s.1291(2).
- The Supreme Court's reasoning in NCL supported this interpretation.
- Parliament intended s.246 FA 2004 to govern unfunded arrangements, not s.1290.
- The test was the object of expenditure, not its effect.
- A tax-driven choice of method does not necessarily create duality of purpose, but here, saving tax was the primary objective.
- Hoey and other authorities did not assist the appellants because the facts here displaced the usual inference that remuneration/pensions are deductible.
The appeal was dismissed.
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A D Bly Groundworks and Civil Engineering Limited and CHR Travel Limited v HMRC [2025] EWCA Civ 1443