EBT claim partially struck out

The company operated a scheme to enable individuals to provide services on a consultancy basis paid via a trust. Over three years, it paid over £9,000,000 into the scheme. In December 2012, HMRC assessed the company’s liability to pay income tax and NIC at £2,328,057.71 for the years 2008/9 and 2009/10. There was no assessment for the tax year 2010/11 or for the year ending 31 December 2011.

The liquidator issued an application under Section 423 Insolvency Act 1986 against a number of former employees who were remunerated in this way. The respondents successfully applied to strike out parts of the claim:

  1. The Court did not accept the liquidator’s pleaded case that the company received no consideration for the payments – the fact they gave rise to a PAYE/NIC liability reflected they were a reward for services. The liquidator’s alternative argument that the consideration amounted to an undervalue could however proceed.
  2. Claims based on the estimated liabilities for the year ending 31 December 2011 were struck out – there had been no assessment or return submitted for that year, and HMRC had not submitted a proof of debt in the liquidation.

Of most interest were the comments made about the ability to pursue the claim when HMRC was the only creditor of significance. It was said that amounted to an abuse of process as it circumvented an individual’s right to appeal assessment through the tax tribunal (HMRC having claims against both the individual and the Company). That argument had force but ICCJ Barber held it was sufficiently complex to warrant examination at trial. Liquidators considering claims arising from Employee Benefit Trusts where HMRC are the major creditor will no doubt want to keep a close eye on this argument.

Hall (Liquidator of Ethos Solutions Ltd) v Nasim and Ors [2021] EWHC 142 (Ch)

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