Marlborough DP Limited (Appellant) v Commissioners for His Majesty’s Revenue and Customs (Respondent)

Case summary

Case ID

UKSC/2025/0127

Parties

Appellant(s)

Marlborough DP Limited

Respondent(s)

The Commissioners For His Majesty's Revenue & Customs

Issue

Where a payment is made as part of a tax avoidance arrangement, what is the test for determining whether that arrangement is a means of providing a reward, recognition or a loan “in connection with” a person’s employment or prospective employment for the purposes of section 554A(1)(c) Income Tax (Earnings and Pensions) Act 2003? Was the Upper Tribunal entitled to interfere with the First-Tier Tribunal’s finding that a payment made for tax avoidance purposes was made “wholly and exclusively for the purposes of … trade” within section 54 Corporation Tax Act 2009?

Facts

This appeal concerns the proper tax treatment of a tax avoidance arrangement. Dr Thomas, a dentist, used a scheme to extract and receive the profits of Marlborough DP Limited (“MDPL”), a dental practice of which he was the sole owner and shareholder. The purpose of the scheme was the avoidance of income and corporation tax. Under the scheme, the MDPL made payments to a trustee, BTIL, whose trust powers were delegated to a separate entity, UPL, for which a third entity MTL acted as nominee. MDPL’s contributions to the trust were paid out by MTL to Dr Thomas as loans. HMRC made decisions in respect of income tax, National Insurance Contributions and corporation tax. The Appellant appealed against these to the First-Tier Tribunal (“FTT”). The FTT held that the payments were not made “in connection with” Dr Thomas’s employment because his employment was not the reason for the payments. They were therefore taxable as distributions and not employment income. The FTT also stated that, if that was incorrect, the payments were made wholly and exclusively for the purposes of MDPL’s trade so were deductible from its corporation tax liability. That decision was reversed by the Upper Tribunal (“UT”) which held that the correct test was whether there was a “strong and direct” connection between the employment and the payment. The UT also held that the payments did not satisfy the “wholly and exclusively test” so could not be subject to any corporation tax deduction. The Court of Appeal upheld that decision. MDPL now appeals to the Supreme Court.

Date of issue

30 July 2025

Case origin

PTA

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