M R Currell Limited: a cautionary tale for HMRC

Tackling disguised remuneration (DR) has long been a focus for HMRC, and they have had significant success in the area, protecting billions of pounds of tax revenue. In order to prevent these DR arrangements from fulfilling their purpose of avoiding income tax on earnings (often through an employee benefit trust (EBT)), a tough approach has been required.

However, some measures introduced by the Government, and HMRC’s approach to enforcing them, have been subject to criticism. The recent case of HMRC v M R Currell Limited [2026] EWCA Civ 445 exemplifies this, with the Court of Appeal warning HMRC against over-reaching, and noting that the involvement of a third party did not turn a loan into earnings where it would not have been earnings if loaned directly. While the loan in the case was advanced before the rules in Part 7A of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA) came into force, which can in fact transform loans paid through third parties in this manner, it is interesting to note that, as discussed in our previous article we are seeing the Part 7A rules being applied more widely to arrangements that happen to involve a third party, but do not involve any tax avoidance.  

Background to HMRC’s approach to DR

HMRC refer to DR schemes as tax avoidance schemes that aim to avoid paying income tax and national insurance contributions by paying part of, or all of, pay as a loan, salary advance, grant, or annuity. These schemes have been around for a long time, but the significant increase in use from around 2005 due to mass marketing through promoters, led to HMRC’s (understandably) increased focus on the arrangements. HMRC reported that, in 2020 - 2021, around 99% of the avoidance market was DR schemes.  

Initially, HMRC were focused on ensuring that any corporation tax deduction on contributions to an EBT matched with the date the relevant benefits were actually paid. Although there were also attempts to charge those contributions as earnings, HMRC were unsuccessful with this in the cases of Dextra Accessories Ltd v Macdonald (Inspector of Taxes) [2002] STC (SCD) 413 and Sempra Metals Ltd v Revenue and Customs Commissioners [2008] STC (SCD). 

However, another case, Rangers, was heard in the First-tier Tribunal (FTT) in 2010 and made its way to the Supreme Court which released its judgment in 2017: RFC 2012 Plc (in liquidation) v Advocate General for Scotland [2017] UKSC 45. The Supreme Court held that remuneration that an employee agreed could be paid to a third party (in the case the trustee of an EBT) was earnings at the point it was paid to the third party.  

In 2011, as Rangers  was progressing through the Courts, anti-avoidance legislation was introduced in Part 7A of ITEPA targeting DR schemes that used third parties, and allowing HMRC to charge income tax and national insurance contributions on the provision of rewards, recognition or loans connected to employment at the point at which a “relevant third person” took a “relevant step” (such as making the loan). According to the 2016 Budget, Part 7A protected £3.9bn, which was £100m more than initially estimated. However, due to new schemes that emerged to sidestep the legislation, new legislation was introduced to charge loans paid through DR schemes that remained outstanding on 5 April 2019. 

The “Loan Charge”, proved to be highly controversial. The most contentious aspect was the retroactive effect, whereby it brought into charge any loans that remained outstanding as at 5 April 2019 in relation to arrangements entered into from 6 April 1999, that would be caught by Part 7A or would have been caught if the legislation was in force at the time. The adverse reaction to the Loan Charge ultimately led to amendments which limited the retroactive element of the legislation to nine years rather than 20 years.

Issues with the Loan Charge and settlement opportunities continued and an independent review was carried out to recommend how to bring the Loan Charge to a close. The 2025 report began by observing:

“If “the art of taxation consists of plucking the goose so as to obtain the largest possible amount of feathers with the least possible amount of hissing”, then, by that measure, the 2017 Loan Charge has failed and become the most controversial anti-avoidance measure of our time.”

Despite the challenges HMRC have faced in tackling DR schemes, they have continued to cast the net wide in applying earnings charges to arrangements involving third parties, as shown in the recent case of HMRC v M R Currell Limited [2026] EWCA Civ 445. 

M R Currell Limited - the facts

The facts of the case are straightforward. M R Currell Limited (the Company), of which Mr and Mrs Currell were directors and each 31% shareholders, had a painting and decorating business in which Mr Currell was a “driving force”. Mr Currell took a salary of less than £5,000 between 2009 and 2011, but also received dividends, of which £60,000–£80,000 were paid in total annually. 

An EBT was established on 18 November 2010, to which the directors approved a contribution of £800,000 (the Payment), which was then loaned to Mr Currell (the Loan) to enable him to purchase 261,437 "A" shares in the Company from Mrs Currell. The Loan was interest free for a five-year term and was secured by a charge on Mr Currell’s interest in the A shares. Mrs Currell then loaned the £800,000 back to the Company. 

The FTT found the “substantial reason” for the Company to make the Payment was to enable the trustee to make the Loan to Mr Currell, the only reason the Loan was made was because of Mr Currell’s work over the years, the Loan did not replace remuneration Mr Currell had sacrificed or reduced in anticipation of receiving the Loan, the Loan was a genuine loan with a real repayment obligation, Mr Currell had the independent funds to settle the Loan on the repayment date, and he was "fully conscious" of his obligation to repay on that date. The FTT also found the reason the Loan was not repaid on time was because HMRC had opened an enquiry and there was a concern of double taxation if the Loan was repaid and the money then used to pay bonuses. 

The findings in the FTT and Upper Tribunal (UT)

The FTT determined that a genuinely repayable loan can be a reward or benefit, and you need to look at the reason for payment of the loan. If it is paid as a reward or benefit for exertions as an employee/director of the company, then it is earnings despite the genuine obligation to repay. The FTT cited Rangers as authority for this proposition. 

However, it was the Payment that the FTT found to be earnings, deciding that as the Loan was only paid for Mr Currell’s work in the business, it was a reward for his services. 

On appeal, the parties disagreed as to whether the FTT had found that the Payment or the Loan was earnings. The (UT) considered it was clear that the FTT had found the Payment was earnings, but the fact the FTT asked itself whether the Loan was a reward or benefit related to its reasoning and, therefore, whether any error of law was material. 

The UT found that the making of the Loan was not a payment of earnings, that the FTT made an error of law in concluding that the Loan conferred a benefit on Mr Currell, and that its payment to Mr Currell was potentially earnings.

The UT remade the decision, holding that the Payment was not remuneration as there was a genuine obligation to repay the Loan.

The Court of Appeal judgment 

Before the Court of Appeal, HMRC argued as an alternative to the Payment being earnings, that the Loan itself was earnings. 

The Court of Appeal had “no doubt” that the UT was correct to detect a material error of law in the FTT’s decision, and it then had to decide whether the UT made an error of law when it remade the decision. The Court then found that, regardless of any errors in reasoning, the UT’s conclusion was the only one that could have been reached, and it exercised its discretion to express its own reasons for the conclusion. 

The Court of Appeal looked at Rangers and found there was a “fundamental distinction” as in Rangers it was accepted that the payments to the EBT were remuneration and “In sharp contrast, that is the very issue in this case.” The Court nonetheless explained why the amounts paid to the EBT in Rangers were remuneration, and a key factor was that the loans from the EBT did not need to be repaid during the employee’s life. 

The Court of Appeal went on to observe the very different facts in Currell with the Loan being genuine and secured, such that Mr Currell understood he had an obligation to repay it. Further, unlike the footballers in Rangers, although Mr Currell was “under rewarded”, that did not mean the Loan would otherwise have been paid to Mr Currell as remuneration. The Court, therefore, found that “In truth, what Mr Currell got was the Loan. This was not a case of diverting remuneration to the EBT.”

As for whether the Loan itself was earnings, while the Court did not rule out the possibility that “in some limited circumstances” the provision of a loan may amount to earnings (most obviously in the case of a sham), that was not the case on the facts. HMRC’s suggestion that a borrower’s control over a lender could alter the legal character of a loan was not relevant on the facts of the case and there was, in any case, no authority for such a proposition in law. 

Caution from the Court of Appeal

The Court of Appeal set out some interesting “concluding remarks” at the end of its judgment. 

It started by noting that HMRC were obviously of the view that Mr Currell should not have been able to access “tax-free” cash from the Company, and that the introduction of Part 7A a few months later showed that Parliament agreed. However, it then said:

“It is of course right that HMRC should consider whether arrangements implemented before these changes fail under the pre-existing law. But, however proper HMRC's motives are, caution is required to avoid a risk of over-reach, with consequential risks to legal certainty. A close inspection of the trees can risk a failure to distinguish the overall wood,”

The Court of Appeal went on to give examples of the much wider repercussions HMRC arguments could have had. For example, if it was the case (as HMRC effectively argued) that loans paid through third parties are taxable as earnings when they would not be if paid directly, then funds paid to a service company to provide employees with benefits such as season-ticket loans may be subject to an immediate earnings charge. Also, if a loan was subject to an earnings charge because the borrower had control over the lender, then it could cause considerable difficulties for directors of owner-managed companies drawing on loan accounts. 

What does this mean for HMRC’s approach to DR?

Although the law has moved on significantly from that in place at the time Mr Currell received the Loan, HMRC’s continued pursuit of this case demonstrates their commitment to putting an end to what they consider to be DR arrangements. The issue is that, as noted by Court of Appeal, HMRC’s blinkered approach means that HMRC are not necessarily giving consideration to the wider implications of the arguments they are making. 

As discussed in our previous article, we have observed this issue in HMRC’s recent challenges to arrangements that happen to involve a third party, but are not seeking to avoid tax through that third party, such as in the case of employee share arrangements.

While DR schemes have, historically, been a significant problem, and substantial action was clearly required, the Loan Charge demonstrates the issues that can be caused when an excessively harsh approach is taken (whether this be through the Government’s legislation or HMRC’s enforcement of that legislation). The 2025 Loan Charge review set out a hope that it would mark a turning point, and it is also hoped that HMRC heed the Court of Appeal’s caution and avoid overreaching in tackling what they perceive to be DR arrangements. 

An early indication as to whether HMRC have taken this warning onboard may be given when it is revealed whether HMRC pursue an appeal of the Court of Appeal’s decision.