On appeal from [2015] CSIH 77.

The appeal considered whether the Court of Session erred in law in reversing the decisions of specialist tribunals below in concluding that payments of “emoluments” or “earnings”, for the purposes of the Income and Corporation Taxes Act 1988 and the Income Tax (Earnings and Pensions) Act 2003, had been made by the appellant to its employees. It also considered whether, in order for a payment to constitute earnings for PAYE and NIC purposes, it was sufficient that the payment was “derived from” work done by a particular employee and/or it “formed part of the employee’s employment package” and whether the powers which each employee held as protector of a sub-trust had the effect that the funds in that sub-trust were unreservedly at the disposal of the employee and were earnings for PAYE and NIC purposes.

The Supreme Court unanimously dismissed the appeal, holding that provisions in the tax code imposing specific tax charges do not militate against the existence of a more general charge to tax that may have priority over or qualify the specific charge, and that a purposive approach to the interpretation of the taxing provisions must be adopted. The Court considered that there was no basis for establishing a general rule that a payment is made for the purposes of PAYE only if the money is paid to or at least placed unreservedly at the disposal of the employee. Rather, the references to making a relevant payment “to an employee” or “other payee” in the PAYE Regulations fall to be construed as payment either to the employee or to the person to whom payment is made with the agreement of the employee. Thus, the  sums paid to the trustee of the principal trust for a footballer constituted the footballer’s earnings, and the risk that the trustee might not set up a sub-trust or give a loan of the sub-trust funds to the footballer does not alter the nature of the payments made to the trustee of the principal trust. As such, as the sums paid into the principal trust were earnings in the first place, the specific provisions of the tax code which deem the benefit of loans to be earnings cannot apply.

For judgment, please download: [2017] UKSC 45
For Court’s press summary, please download: Court’s Press Summary
For a non-PDF version of the judgment, please visit: BAILII

To watch the hearing, please visit: Supreme Court Website (15 Mar 2017 morning session) (15 Mar 2017 afternoon session) (16 Mar 2017 morning session) (16 Mar 2017 afternoon session)