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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Marlborough DP Ltd v Commissioners for His Majesty's Revenue and Customs [2025] EWCA Civ 796 (26 June 2025)
URL: http://www.bailii.org/ew/cases/EWCA/Civ/2025/796.html
Cite as: [2025] EWCA Civ 796

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Neutral Citation Number: [2025] EWCA Civ 796
Case No: CA-2024-001507

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL (TAX AND CHANCERY CHAMBER)
MR JUSTICE EDWIN JOHNSON and JUDGE GUY BRANNAN
[2024] UKUT 98 (TCC); [2024] STC 1627

Royal Courts of Justice
Strand, London, WC2A 2LL
26/06/2025

B e f o r e :

LORD JUSTICE SINGH
LORD JUSTICE WILLIAM DAVIS
and
LADY JUSTICE WHIPPLE

____________________

Between:
MARLBOROUGH DP LIMITED
Appellant
- and -

COMMISSIONERS FOR HIS MAJESTY'S REVENUE AND CUSTOMS
Respondents

____________________

Michael Firth KC and Ben Blades (instructed by Morr & Co LLP) for the Appellant
Julian Ghosh KC, Barbara Belgrano, Sarah Black and Colm Kelly (instructed by HMRC Solicitor's Office and Legal Services ) for the Respondents

Hearing dates: 30 April - 1 May 2025

____________________

HTML VERSION OF APPROVED JUDGMENT
____________________

Crown Copyright ©

    This judgment was handed down remotely at 10 a.m. on 26 June 2026 by circulation to the parties or their representatives by e-mail and by release to the National Archives.
    .............................

    Lord Justice Singh:

    Introduction

  1. It is my sad duty to record that William Davis LJ died after the hearing of this appeal. He agreed with the outcome of the appeal. On 16 June 2025 the Master of the Rolls issued a direction under section 54(4A) of the Senior Courts Act 1981 that the Court, comprising the two other members, is duly constituted to decide the matter.
  2. This appeal is brought by Marlborough DP Limited ("MDPL" or "the Appellant") against the decision of the Upper Tribunal (Tax and Chancery Chamber) ("UT"), comprising Edwin Johnson J and Judge Guy Brannan, dated 12 April 2024. The UT (in part) allowed the appeal by His Majesty's Revenue and Customs ("HMRC" or "the Respondents"). The Appellant seeks the restoration of the decision of the First-tier Tribunal ("FTT"), comprising Judge Harriet Morgan and Mr John Woodman, dated 1 September 2021.
  3. This case arises from the Appellant's appeals to the FTT against:
  4. (1) Corporation tax closure notices and discovery assessments for the accounting periods ended 31 March 2008 to 2015;

    (2) PAYE determinations for the years of assessment 2010/11 to 2014/15; and

    (3) Decisions relating to National Insurance contributions for the years 2011/12 to 2014/15.

  5. The first main issue on this appeal concerns the interpretation of the phrase "in connection with … employment" in section 554A(1)(c) of the Income Tax (Earnings and Pensions) Act 2003 ("ITEPA"), which is in Part 7A of ITEPA, which was introduced by the Finance Act 2011. The other main issue, which arises in the alternative, concerns the deductibility of certain expenses for the purpose of corporation tax on the ground that they were incurred "wholly and exclusively" for the purposes of the trade of MDPL.
  6. At the hearing we heard submissions on behalf of the Appellant from Mr Michael Firth KC and (on the second main issue) Mr Ben Blades; and on behalf of the Respondents from Mr Julian Ghosh KC. After the hearing we also received written submissions from both parties about the second main issue.
  7. The legislative framework

  8. Section 554A of ITEPA states that:
  9. "(1) Chapter 2 applies if–
    (a) a person ("A") is an employee, or a former or prospective employee, of another person ("B"),
    (b) there is an arrangement ("the relevant arrangement") to which A is a party or which otherwise (wholly or partly) covers or relates to A,
    (c) it is reasonable to suppose that, in essence–
    (i) the relevant arrangement, or
    (ii) the relevant arrangement so far as it covers or relates to A,
    is (wholly or partly) a means of providing, or is otherwise concerned (wholly or partly) with the provision of, rewards or recognition or loans in connection with A's employment, or former or prospective employment, with B,
    (d) a relevant step is taken by a relevant third person, and
    (e) it is reasonable to suppose that, in essence–
    (i) the relevant step is taken (wholly or partly) in pursuance of the relevant arrangement, or
    (ii) there is some other connection (direct or indirect) between the relevant step and the relevant arrangement." (Emphasis added)

  10. Section 554A(2) provides that, in this Part, "relevant step" means a step within section 554B, 554C or 554D. For present purposes the relevant section is section 554C, which refers to the relevant steps of payment of a sum, transfer of asset etc. It provides, in subsection (1):
  11. "A person ("P") takes a step within this section if P–
    (a) pays a sum of money to a relevant person,
    (b) transfers an asset to a relevant person,
    (c) takes a step by virtue of which a relevant person acquires an asset within subsection (4),
    (d) makes available a sum of money or asset for use, or makes it available under an arrangement which permits its use–
    (i) as security for a loan made or to be made to a relevant person, or
    (ii) otherwise as security for the meeting of any liability, or the performance of any undertaking, which a relevant person has or will have
    …" (Emphasis added)

  12. Section 554C(2) provides that, in subsection (1), "relevant person" –
  13. "(a) means A or a person chosen by A or within a class of person chosen by A, and
    (b) includes, if P is taking a step on A's behalf or otherwise of A's direction or request, any other person."

  14. Section 554C(3) provides that, in subsection (2), references to A include references "to any person linked with A."
  15. Section 554Z, which is the general interpretation section for Part 7A of ITEPA, provides in subsection (7), that references to the payment of a sum of money "include (in particular) references to the payment of a sum of money by way of a loan."
  16. Returning to section 554A, subsection (6) provides that, for the purposes of subsection (1)(c),
  17. "it does not matter if the relevant arrangement does not include details of the steps which will or may be taken in connection with providing, in essence, rewards or recognition or loans as mentioned (for example, details of any sums of money or assets which will or may be involved or details of how or when or by whom or in whose favour any step will or may be taken)."

  18. Section 554A(7) provides that, in subsection (1)(d), "relevant third person" means–
  19. "(a) A acting as a trustee,
    (b) B acting as a trustee, or
    (c) any person other than A and B."

  20. Section 554A(12) provides that, for the purposes of subsection (1)(c) in particular, "all relevant circumstances are to be taken into account in order to get to the essence of the matter." (Emphasis added)
  21. Having set out the relevant steps that may be taken under section 554B, 554C and 554D, the legislation contains a number of provisions setting out exclusions from the application of Chapter 2. Section 554F sets out exclusions in the context of "commercial transactions" but this is relatively limited in its scope. Subsection (1) provides that:
  22. "Chapter 2 does not apply by reason of a relevant step which is the payment of a sum of money by way of a loan if–
    (a) the loan is a loan on ordinary commercial terms within the meaning of section 176 (ignoring conditions B and C in that section), and
    (b) there is no connection (direct or indirect) between the relevant step and a tax avoidance arrangement."

  23. That takes one to section 176(2) of ITEPA, which provides, in subsection (2), that a "loan on ordinary commercial terms" means
  24. "a loan–
    (a) made by a person ('the lender') in the ordinary course of a business carried on by the lender which includes–
    (i) the lending of money, or
    (ii) the supplying of goods or services on credit, and
    (b) in relation to which condition A, B or C is met."

    Factual Background

  25. The salient facts were helpfully summarised by the UT in its judgment, at paras 12-17:
  26. "12. MDPL is a company incorporated in England and Wales on 31 May 2007, whose principal activity during the period from 31 May 2007 to 5 April 2015 was that of operating a dental practice. Dr Thomas was the sole shareholder in MDPL for the whole of this period and the sole director since 27 November 2007. Dr Thomas worked as a dentist in MDPL's practice along with an associate.
    13. MDPL used a marketed tax avoidance scheme promoted by entities connected with Mr Paul Baxendale-Walker ('BW').
    14. Essentially, the scheme attempted to achieve a corporation tax deduction for MDPL in respect of sums paid by MDPL to a 'Remuneration Trust' ('RT'), which were approximately equal to the profits made by MDPL for the relevant year (although contributions to the RT exceeded profits for the years 2008-2010 and 2012-2015 and were somewhat less than the profits for 2011).
    15. The RT arrangements were as follows.
    (1) On 4 September 2007, Dr Thomas was sent various documents from BW regarding 'Remuneration Trust Arrangements'.
    (2) On 3 October 2007, MTL Management Limited ('MTL') was incorporated in Belize with Dr Thomas as the sole director and shareholder.
    (3) BW prepared two similar documents entitled 'Report to the Board' dated 16 November 2007 and 5 December 2007 setting out how the RT arrangements were intended to work.
    (4) On 20 January 2008, Dr Thomas, as the director of MDPL, resolved to make contributions to the RT. Dr Thomas could not explain why this took place before the RT was established.
    (5) The RT was established by Deed executed on 31 January 2008. The RT Deed was made between MDPL and Bay Trust International Limited ('BTIL') of Belize as the trustee. Dr Thomas signed the RT Deed as the director of MDPL.
    (6) On 1 February 2008:
    (i) BTIL delegated to UPL Holdings Limited, a company established in Belize, 'the execution or exercise of all or any of the Trust's powers and discretions conferred upon it as Trustee as regards the management and custody of the Trust Fund.'
    (ii) UPL Holdings Limited, as 'the Principal', and MTL, as 'the Fiduciary', entered into a 'Fiduciary Services Agreement' pursuant to which MTL was stated to have 'all the rights to apply and deal with the Property and the income and capital thereof and all accumulations thereto as if it were the beneficial owner thereof….'
    (7) On 19 March 2009 and 26 June 2012, Dr Thomas and BTIL (as trustee of the RT) executed Deeds of Amendment to the RT Deed which were said to have effect retrospectively to the date the RT was established on 31 January 2008.
    (8) Several times each year, in the period from 5 March 2008 to 23 March 2015, Dr Thomas, acting as the sole director of MDPL, resolved to make contributions to the RT and, usually within a few days, Dr Thomas would write to BTIL on MDPL headed paper asking it to consider advancing a loan to him. The contributions made by MDPL to the RT comprise all or substantially all the profits made by MDPL from its dentistry practice. A loan would then be made by the RT, via MTL as nominee for the Trustees, to Dr Thomas. In all but two cases the loan was in the same amount as the contribution. In the two other cases, one loan was £1,000 less than the corresponding contribution, and the other loan was £500 more than the corresponding contribution.
    16. There were occasions where funds were transferred to MTL before the relevant resolutions were made by MDPL for a contribution to be made to the RT.
    17. In each accounting period, MDPL paid Dr Thomas a relatively small salary ranging from £4,390 for the accounting period ending on 31 March 2008 to £10,548 and £9,893 for the accounting periods ending on 31 March 2014 and 31 March 2015 respectively."

    The judgment of the FTT

  27. As the FTT noted at para 3 of its judgment, there was no dispute that the sole purpose of the scheme was to extract MDPL's profits into the hands of Dr Thomas in a form which it was thought (a) did not attract any liability to tax (namely, as loans) but (b) did enable MDPL to obtain a tax deduction for the relevant sums in computing the profits of its dental trade for corporation tax purposes. The Appellant accepted before the FTT that the tax avoidance scheme did not in fact work. It concedes that, if the income is not taxable as employment income, then no corporation tax deduction was achieved.
  28. The FTT heard live evidence, including from Dr Thomas, and set out its findings of fact at paras 9-67 of its judgment. It is unnecessary to set them out here, as I have already set out the UT's helpful summary of the salient facts above, which was based on the FTT's findings.
  29. At paras 68-131 of its judgment, the FTT considered whether the relevant sums were taxable as "earnings from employment" under the general rules in ITEPA such that MDPL was liable to account for income tax and National Insurance contributions in respect of them. The FTT concluded that they were not. That is no longer a live issue before this Court. However, Mr Firth places reliance on the following findings made by the FTT at paras 129-131 of its judgment:
  30. (1) There was no contractual obligation on the Appellant to pay the sums to Dr Thomas as a reward for his work.

    (2) The sums were equivalent to "the totality of the overall profits" of the Appellant's business.

    (3) The profits arose from work done by all of the Appellant's employees, not just Dr Thomas.

    (4) Had it not been for the arrangements, those profits would have been paid as dividends and not as salary.

    (5) The Appellant provided Dr Thomas with the sums in the same way as an investor would receive a formally declared dividend.

  31. At paras 132-144 of its judgment, the FTT addressed the issue which has become the first main issue in the present appeal. This was whether the relevant sums are taxable under Part 7A of ITEPA. The FTT concluded that they are not. The critical part of its reasoning appears at para 137:
  32. "We agree with MDPL's view that, reading s 554A(1)(c) in context, for there to be a 'connection' of the required kind with Dr Thomas' employment, the employment must be part of the reason for the reward, recognition or loan. On that basis, an assessment of whether [it] is reasonable to suppose that, in essence the RT arrangement so far as it relates to Dr Thomas is (wholly or partly) a means of providing or, is otherwise concerned (wholly or partly) with, the provision of, rewards or recognition or loans in connection with Dr Thomas' employment requires essentially the same analysis as that set out in relation to whether the relevant sums constitute earnings. Accordingly, we have concluded that this test is not met as regards the connection test for all the same reasons as are set out above." (Emphasis added)

  33. At paras 145-161 of its judgment, the FTT addressed the issue of whether MDPL was entitled to a deduction in computing its profits for corporation tax purposes in case it was wrong in its conclusion that they were not taxable under ITEPA. On this issue the FTT was divided but Judge Morgan cast her casting vote to decide this issue in favour of the Appellant: see in particular para 159(1) and (2) of the judgment. This gives rise to the second main issue in this appeal.
  34. The judgment of the UT

  35. The main judgment of the UT was given on 12 April 2024. A supplementary judgment, dealing with ancillary matters, was also given on that date but I will only need to refer here to the main judgment.
  36. Before the UT there was still a live issue as to whether the FTT had erred in its decision in respect of the "general earnings" point. This was addressed by the UT at paras 64-121 of its judgment. HMRC's appeal on this issue was dismissed. As I have said, that is no longer a live issue in this case.
  37. At paras 122-152 of its judgment, the UT addressed the issue which is now the first main issue in this appeal, concerning Part 7A of ITEPA. The UT allowed HMRC's appeal on this issue.
  38. As to the law, having considered the judgments of this Court in HMRC v Barclays Bank plc [2007] EWCA Civ 442; [2008] STC 476 and London Luton Hotel BPRA Property Fund LLP v HMRC [2023] EWCA Civ 362; [2023] 1 WLR 4156, the UT summarised the following propositions which could be drawn from those authorities, at para 131 of its judgment:
  39. "(1) The phrase 'in connection with' must be construed by looking closely at the surrounding words and the context of the legislative scheme (Barclays Bank [18] and [19]) and at the context and policy of the provision (London Luton [69]).
    (2) A connection can be both direct or indirect, and this is likely to be the case whenever the phrase 'in connection with' is used (Barclays Bank [19] to [20]).
    (3) There can be a connection with more than one other thing, in which case it is necessary to see if the connections can co-exist or whether one will actually exclude the other (Barclays Bank [20] and [25]).
    (4) A connection once established is unlikely to be displaced by other factors or connections (Barclays Bank [22] to [23]).
    (5) A payment made to every member of a class of people is likely to be made in connection with that class (Barclays Bank [22] and [26])"

  40. The essence of the UT's reasoning for allowing HMRC's appeal on the Part 7A issue appears at paras 148-150:
  41. "148. In our judgment, however, the FTT erred in law in stating the test as being that the employment had to be part of the reason for the reward. That is not the statutory test. The words used by Parliament involve a test of connection not one of causation. As we have said, we consider that there must be a strong or direct connection between the employment/ directorship and the loan. Section 554A(12) ITEPA provides 'all relevant circumstances are to be taken into account in order to get to the essence of the matter'. We consider that this reinforces the need to identify which (if any) of the various facts found by the FTT constitute the sufficiently close connection required by section 554A(1)(c) ITEPA.
    149. In the present case, Dr Thomas, acting as the director of MDPL resolved to make contributions to the RT. Shortly thereafter, Dr Thomas would write to BTIL on MDPL headed paper asking it to consider advancing a loan to him. A loan would subsequently be made by the RT, via MTL as nominee for the Trustees, to Dr Thomas. In our view, that, of itself, is an insufficient degree of connection to Dr Thomas' directorship for the loans to be regarded as made in connection with that office. A company can only act through the agency of its directors and employees, unless it acts in general meeting. We consider that resolving to make the contribution and requesting the loan were not sufficiently closely connected with Dr Thomas' directorship to cause section 554A(1)(c) ITEPA to be engaged.
    150. The profits of MDPL, paid as contributions to the RT and then on-lent to Dr Thomas, reflected the profits of the dental practice carried on by MDPL. Dr Thomas was actively engaged in the practice as a dentist and was assisted by a hygienist and an associate dentist (see [52]). At all material times, Dr Thomas was the sole director of MDPL and, therefore, the guiding mind of the company solely responsible for the conduct and direction of its business from which the profits were derived. In our view, this is a sufficiently direct and close connection with Dr Thomas' directorship (treated by section 5 ITEPA as an employment) to ensure that section 554A(1)(c) applied. We are satisfied that treating the profits of MDPL contributed to the RT and on lent to Dr Thomas as connected with his directorship accurately reflects the essence of the overall arrangement."

  42. At paras 163-172, the UT addressed the deductibility issue. This, as the UT noted at para 164, had now become a live issue because of its decision to allow HMRC's appeal on the Part 7A issue. The reasoning of the UT on the deductibility issue appears at paras 169-171:
  43. "169. We have no doubt that Mr Woodman's view, that the contributions were non-deductible, was correct. On Dr Thomas' own evidence the contributions were made in such amounts as were necessary to reduce the taxable profits of MDPL to nil. The twin objectives of the BW scheme adopted by MDPL and pursued by Dr Thomas were to empty MDPL of profit and to advance that profit via the RT to Dr Thomas by way of non-taxable loans; see also the Decision at [3], [41] [54(2)] and [129] second sentence. There was no intention or purpose to benefit the trade of MDPL.
    170. Judge Morgan's analysis appears to proceed on the assumption that the contributions were to reward Dr Thomas for his services as director (see [159(2)]) or MDPL's purpose in making the contributions 'must be taken to be to provide Dr Thomas with earnings…' (see [159(1)(a)]). However, that is language indicative of the charge to tax in respect of general earnings under section 62 ITEPA. In fact, as we have decided, the loans were caught by the anti-avoidance provisions of Part 7A ITEPA as being loans connected with Dr Thomas' employment/directorship. A deduction for those sums cannot, therefore, using the words of Scotts Atlantic at [67], simply be regarded as an 'ordinary, intended or realistically expected outcome of making salary, bonus or equivalent payments' and Judge Morgan's holding otherwise, in our view, constitutes an error of law. A charge to income tax under Part 7A ITEPA was neither intended nor desired and making a payment which was taxable under those provisions was certainly not the purpose of MDPL.
    171. Instead, disregarding the untrue reasons given in the resolutions for the contributions, the intention of MDPL in making the contributions was to empty the company of profit in order to fund a tax-free benefit (i.e. the loans) to Dr Thomas. There was no trading purpose and no benefit to MDPL's trade. It is impossible, we think, to conclude that, simply because these payments were caught by the anti-avoidance provisions of Part 7A ITEPA, the sums were expended wholly and exclusively for the purposes of the trade of MDPL – that is simply unrealistic. We agree with Mr Woodman that the purpose of MDPL in making these payments was to achieve a tax avoidance purpose for the benefit of Dr Thomas and MDPL and was an end in itself."

  44. Accordingly, the UT allowed HMRC's appeal on the deductibility issue.
  45. In its conclusions, the UT turned to the question whether, having set aside the decision of the FTT for relevant purposes, it should remit the case to the FTT or remake the decision itself. At paras 175-176 of its judgment, the UT decided to remake the decision for itself. It found that the loans/contributions in respect of the relevant years were chargeable to income tax under Part 7A of ITEPA; and also found that the contributions made by MDPL in each of the applicable accounting periods were non-deductible for corporation tax purposes.
  46. The Appellant was granted permission to appeal to this Court by the UT on 5 June 2024.
  47. On 31 July 2024 Newey LJ refused an application from HMRC for permission to cross-appeal on the general earnings issue.
  48. Grounds of Appeal

  49. The Appellant advances five grounds of appeal:
  50. (1) The UT applied the wrong test when determining whether the loans were "in connection with A's employment", for the purposes of Part 7A.

    (2) The UT erred in failing to consider whether the connection identified was displaced and/or applied the wrong approach to that question.

    (3) The UT erred in failing to explain why that connection amounted to a "strong and direct" connection and erred in failing to properly apply its test and reaching an unsustainable conclusion.

    (4) The UT erred in failing to consider whether the arrangement was a means of providing payments with that connection.

    (5) The UT erred in overturning the FTT's conclusion on corporation tax as it identified no error of law in the conclusion that the tax advantage was not an end in its own right. If Ground 4 above does not succeed, the UT must still have found that the alleged connection with the employment of Dr Thomas was essentially the arrangement's trading purpose.

  51. The main ground of appeal is ground 1. Grounds 2, 3 and 4 only arise if the Appellant fails on ground 1 and concern the application of the test which the UT considered was the correct one. Ground 5 is advanced in the alternative, as it only arises if the Appellant fails on all of the first four grounds.
  52. Ground 1: the interpretation of section 554A(1)(c) of ITEPA

  53. Ground 1 is that the UT applied the wrong test when determining whether the loans were "in connection with A's employment", for the purposes of Part 7A.
  54. The Appellant contends that, having regard to the statutory context, the employment must be "part of the reason" for the making of the payment (here a loan) if the payment is to have a connection with the employment. Mr Firth submits that the purpose of Part 7A of ITEPA was to address the mischief of rewarding employees through third parties and had nothing to do with applying employment income tax to payments where employment was not "part of the reason" for making them. In substance, he submits, the payments in this case were distributions to a shareholder. The fact that they were made as part of a tax avoidance scheme which did not work does not alter that substance and make them employment income.
  55. HMRC's position is that the amounts received by Dr Thomas are amenable to income tax as they satisfy the express requirements of section 554A(1) of ITEPA. The relevant conditions of section 554A(1) are that (i) there is a relevant arrangement as the person party to it is an employee, (ii) it is reasonable to suppose that the arrangement provided loans in connection with that employment, and (iii) a relevant third person (in this case the trustees to the Remuneration Trust) took a relevant step pursuant to the arrangement (their payments to Dr Thomas, payments for this purpose including loans).
  56. In my judgment, the fundamental difficulty with the Appellant's interpretation, which was accepted by the FTT, is that it imports a test of causation into section 554A(1)(c) of ITEPA which is simply not there. Parliament could have used the well-known formulae "from employment" or "by reason of employment" but chose not to do so in this context. In my judgment, the UT was correct to conclude that the FTT had erred in law.
  57. In support of ground 1 Mr Firth advances five main submissions, none of which I find persuasive. He submits that his interpretation is consistent with (1) the purpose of Part 7A, as shown by the Explanatory Notes and other background material; (2) the surrounding statutory context; (3) the general nature of employment income; and (4) the division of taxation between employment income and company distributions, so as to avoid double taxation of the same income. He also submits (5) that the test as adopted by the UT is devoid of legal certainty. I turn to consider each of those submissions.
  58. (1) Explanatory Notes and other background material

  59. The modern approach to statutory interpretation is not in doubt. It was summarised by Lord Hodge DPSC in R (O) v Secretary of State for the Home Department [2022] UKSC 3; [2023] AC 255, at paras 29-31. Lord Hodge said that words and passages in a statute derive their meaning from their context. A phrase or passage must be read in the context of a section as a whole and in the wider context of a relevant group of sections. Other provisions in a statute and the statute as a whole may provide the relevant context. "They are the words which Parliament has chosen to enact as an expression of the purpose of the legislation and are therefore the primary source by which meaning is ascertained." He also observed that there is an important constitutional reason for having regard primarily to the statutory context, since citizens, with the assistance of their advisers, should be able to understand Parliamentary enactments, so that they can regulate their conduct accordingly. They should be able to rely upon what they read in an Act of Parliament.
  60. Lord Hodge said that external aids to interpretation must therefore play a secondary role. "Explanatory Notes, prepared under the authority of Parliament, may cast light on the meaning of particular statutory provisions." As he said, the context disclosed by such materials is relevant to assist the court to ascertain the meaning of the statute "whether or not there is ambiguity and uncertainty, and indeed may reveal ambiguity or uncertainty". But, he continued, "none of these external aids displace the meanings conveyed by the words of a statute that, after consideration of that context, are clear and unambiguous and which do not produce absurdity." Finally, Lord Hodge said that statutory interpretation "involves an objective assessment of the meaning which a reasonable legislature as a body would be seeking to convey in using the statutory words which are being considered."
  61. In the present context, Explanatory Notes were published to accompany the Finance (No. 3) Bill, which was introduced into Parliament on 31 March 2011. The Notes pointed out, in the introduction at para 1, that they did not form part of the Bill and had not been endorsed by Parliament. At para 2, it was said that they were not, and were not meant to be, a comprehensive description of the Bill. The Explanatory Notes said that Clause 26 and Schedule 2 inserted a new Part 7A into the ITEPA. Mr Firth relies in particular on para 271 of the Explanatory Notes:
  62. "The June 2010 Budget announced that legislation would be introduced from April 2011 to tackle arrangements using trusts and other vehicles to reward employees which seek to avoid, defer or reduce tax liabilities." (Emphasis added)

  63. He also relies on what was said in the March 2010 Budget announcement, at paras 5.62 and 5.63:
  64. "[5.62] HMRC has used its Spotlights publication to make taxpayers and their agents aware of the risks of taking up avoidance schemes. It will continue to use litigation as a tool to tackle avoidance and has recently been successful in the areas of residence and the use of arrangements to reward employees through intermediaries to avoid tax…
    [5.63] … The Government also announces future action to tackle the use of arrangements to reward employees through the use of trusts or other intermediaries, with the purpose of avoiding, deferring or reducing liabilities to income tax and NICs or avoiding restrictions on pensions tax relief. The Government will consider options for tackling these avoidance arrangements with the intention of introducing any necessary legislation to take effect from April 2011." (Underlining added)

  65. This was confirmed in the June 2010 Budget, after there had been a change of Government. Mr Firth also relies on what was said in HMRC's Spotlight 5, from August 2010:
  66. "HMRC are aware that companies have been seeking to reward employees without operating PAYE (Pay As You Earn)/National Insurance contributions (NICs). This is done by making payments through trusts and other intermediaries that favour the employees or their families.
    The arrangements usually seek to secure a Corporation Tax deduction, as if the amounts were earnings at the time they are allocated. They also defer PAYE and NICs or avoid them altogether. HMRC believe that at the time the funds are allocated to the employee or their beneficiaries, those funds become earnings on which PAYE and NICs are due and should be accounted for by the employer.
    …
    HMRC are actively challenging examples of such arrangements and considering legislative options to end further usage of these schemes." (Underlining added)

  67. Mr Firth cited Cobalt Data Centre 2 LLP v HMRC [2024] UKSC 40; [2024] 1 WLR 5213, in which the Supreme Court found it helpful to refer to a Treasury Press Statement setting out clearly the underlying purpose of the regime which had been introduced in the Finance Act 1980 to promote the regeneration of economically deprived areas to be known as Enterprise Zones: see paras 78-83 (Lord Briggs and Lord Sales JJSC). But no one doubts that background material is admissible; the real question is what, if any light it sheds on the true interpretation of the particular legislation being construed and, of course, each case turns on its own facts.
  68. Of more general importance, in my view, is the passage to be found at para 70 of Cobalt Data Centre. The Supreme Court said that construction of statutes, and taxing statutes in particular, "requires close attention to the purpose of the provision in issue, and a realistic view of the transaction or other matter to which it is alleged to apply". The judgment cited well-known but important dicta to that effect from Barclays Mercantile Business Finance Ltd v Mawson [2004] UKHL 51; [2005] 1 AC 684, at para 32 (Lord Nicholls of Birkenhead); and Collector of Stamp Revenue v Arrowtown Assets Ltd [2003] 6 HKFCAR 517, at para 35, which had been approved in Barclays Mercantile (Riviero PJ).
  69. I do not accept Mr Firth's argument that the provisions in question should be interpreted in a limited way so as to counteract the kind of tax avoidance scheme which Parliament must have had in mind when it enacted them. As Lord Wilberforce observed in IRC v Parker [1966] AC 141, at pages 176-177, "we must take the Act as we find it and endeavour to see what it fairly covers."
  70. In particular, the general background to the legislation in 2010-2011, including the Explanatory Notes, does not detract from what I regard as the fundamental difficulty in the Appellant's interpretation, which is that it seeks to import a causation test into the language of section 554A(1)(c) which is not there.
  71. (2) Statutory context

  72. Mr Firth relies on the statutory context in which the word "loan" appears in section 554A(1)(c) of ITEPA. He says that it should be treated as having the same colour as the earlier words of "reward" and "recognition", which, he submits, must clearly be given because of the employment. The difficulty with this argument is that the word "loan" has a clear meaning and is not necessarily restricted to a payment for employment.
  73. This explains why it was necessary to enact the exclusion for "commercial transactions" in section 554F of ITEPA, cross-referring to section 176, but it is significant that this is a limited exclusion. It makes it clear that a business such as a bank will not fall within the scope of Part 7A but, if there were no express exclusion, Parliament clearly contemplated that it would fall within its scope. This indicates that employment need not be part of the reason for a loan from a third party.
  74. Furthermore, other parts of the statutory wording which set out the context in which the phrase "in connection with" appears need to be carefully considered and applied. They impose a number of different, cumulative requirements and are objective conditions which must be satisfied before the charging provision in Part 7A can apply. For example, section 554A in more than one place uses the phrase "reasonable to suppose", in other words it does not actually require a certain state of affairs to exist but nor is it sufficient that HMRC subjectively consider that it exists: the legislation requires that it is reasonable to suppose that that state of affairs exists. As was explained by Nugee LJ in Dolphin Drilling Ltd v HMRC [2024] EWCA Civ 1; [2024] Ch 255, at para 60, when construing the phrase "reasonable to suppose" in the context of section 356LA(3) of the Corporation Tax Act 2010, that wording "requires an objective assessment".
  75. Accordingly, the statutory context does not support the Appellant's submission. If anything, it supports the UT's interpretation of section 554A of ITEPA.
  76. (3) General nature of employment income

  77. Mr Firth relies on what he calls the general nature of employment income. In this context he cited the dicta of Mummery LJ in Kuehne + Nagel Drinks Logistics Ltd v HMRC [2012] EWCA Civ 34; [2012] STC 840, at para 33:
  78. "All I need say at this point is that the use of 'from' in the idea expressed in the statutory expression 'earnings from an employment' and 'earnings derived from an employment' in a fiscal context indicates, as a matter of plain English usage, that there must, in actual fact, be a relevant connection or a link between the payments to the employees and their employment."

  79. As I understand it, the reason why Mr Firth draws attention to that passage is that Mummery LJ appears to have used the phrase "a relevant connection" to be equivalent to "from" or "derived from". There are two difficulties with this submission. First, as Mummery LJ himself was at pains to emphasise, at para 32, where he quoted Lord Radcliffe in Hochstrasser v Mayes [1960] AC 376, at page 391, while certain words can have value as illustrating the idea which is expressed by the words of a statute, they are all glosses and do not displace those words. Secondly, Mummery LJ was dealing with statutory language ("from" or "derived from") which is different from the statutory language with which this appeal is concerned. It is clear in the context of that different statutory language that the law embraces the use of a causation test.
  80. By way of contrast, in Mathur v HMRC [2024] UKUT 38 (TCC); [2024] STC 360, the UT (Miles J and Judge Jones) made it clear that, where the ITEPA uses the phrase "otherwise in connection with" (there in section 401) the link between the payment of a person's employment can be broader than a standard causative link, otherwise the additional words would be otiose. "It does not require a sophisticated or legalistic analysis of causation": see para 65 of the judgment.
  81. (4) The risk of double taxation

  82. Mr Firth submits that interpreting section 554A(1)(c) of ITEPA in the way that the UT did will have the consequence that Part 7A will apply to payments made for entirely non-employment reasons, including dividends paid to a shareholder. He submits that this could lead to the risk of the same income being taxed twice.
  83. In this context Mr Firth emphasised the fundamental principle that income tax is one tax and the different schedules are simply the modes by which statute directs that one tax to be levied: see Fry v Salisbury House Estate Ltd [1930] AC 432, at page 439 (Viscount Dunedin). Furthermore, once income has been taxed under one schedule it cannot be taxed under another.
  84. The principles to be derived from the speeches in Fry were helpfully summarised by Moses LJ in PA Holdings Ltd v HMRC [2011] EWCA Civ 1414; [2012] STC 582, at para 28:
  85. "(i) income tax is only one tax, and the different schedules do no more than to provide the method of computation charge and assessment peculiar to the schedule to which the income is allocated;
    (ii) the Schedules are mutually exclusive, each schedule is dominant over its own subject matter and provides a complete code for the class of income which falls within that schedule; and
    (iii) the same source of income cannot be taxed twice."

    Those principles are not in dispute but they do not assist Mr Firth's submission.

  86. The difficulty with this submission is that the other statutory requirements all need to be satisfied before Part 7A will apply. In particular, there has to be the taking of a relevant step by a third party. In a normal situation, where (for example) the sole director of a company resolves to be paid remuneration in the form of dividends by virtue of his shareholding in the company, there will be no relevant third person. The reason why this was not a normal situation was that the Appellant tried to use a tax avoidance scheme, which required the insertion of a third person and the making of loans.
  87. In this context Mr Firth relied on the decision of this Court in Clipperton v HMRC [2024] EWCA Civ 180; [2024] STC 582. He also showed us the judgment of the FTT in that case: [2021] UKFTT 12 (TC), a judgment of Judge Morgan. In that case the taxpayers were involved in a marketed tax avoidance scheme which was designed to enable the owners of a company to extract funds from the company without incurring a charge to income tax. The taxpayers were the sole directors and shareholders in a company (Winn Yorkshire) which carried on an accountancy business. They also incorporated a subsidiary company (Winn Scarborough). A dividend was declared but the sums received by the taxpayers as beneficiaries of a trust were not included in their self-assessment returns as their income. They argued that there was a settlement and the income was that of a company and no-one else. HMRC amended their returns concluding that the sums were taxable in the hands of the taxpayers pursuant to sections 383 and 385 of the Income Tax (Trading and Other Income) Act 2005. The taxpayers' appeal to the FTT was dismissed, as was their appeal to the UT. The further appeal to the Court of Appeal was also dismissed.
  88. As Judge Morgan noted in the FTT, at para 16, the sole purpose of the relevant parties in implementing the arrangements was to enable Winn Yorkshire to provide its shareholders with the funds they received as a return on their investment in shares without attracting the income tax charge which usually applies to dividends or distributions made to shareholders. At para 127, she concluded that, viewed in their entirety, the purpose and effect of the arrangements was to enable the appellants to receive the bulk of the £200,000 which Winn Yorkshire used to subscribe for an additional A share in Winn Scarborough as a return on their shares in Winn Yorkshire. The fact that the shareholders did not receive the sums direct from Winn Yorkshire but through a series of steps designed solely with the intention that they would not be the subject of income tax on the sums did not detract from the nature of the receipt in their hands.
  89. When the appeal came before this Court, the main judgment was given by Nugee LJ. At para 29, he said that there was little doubt that Judge Morgan was entirely justified in her conclusion. The payment by Winn Yorkshire to Winn Scarborough was simply the first step in a scheme designed to distribute the majority of the money to the appellants. The money was being distributed to them because they were owners of Winn Yorkshire and wished to extract profits from the company into their own pockets. Everything else was just a means of enabling that to happen. In those circumstances the conclusion that the money was a distribution by Winn Yorkshire out of its assets to the appellants as holders of its shares was not only one that was open to Judge Morgan but was "obviously right."
  90. Mr Firth relies on Clipperton because he submits that it illustrates the fundamental proposition of tax law that the nature of the income in question has to be ascertained as a matter of substance and that, in the present case also, the payments were dividends, not income in connection with employment. But that proposition is not in dispute. The critical point of distinction from the facts of Clipperton is that, in the present case, the money paid to Dr Thomas was not distributed as dividends but was a loan. Accordingly, Part 7A did not apply to facts such as Clipperton, whereas it does apply in the present context.
  91. (5) Legal certainty

  92. Mr Firth submits that the test adopted by the UT is so vague and unclear that it does not satisfy the principle of legal certainty. I do not accept that submission. What legal certainty requires depends on the context. The law is well capable of dealing in a flexible but just way with formulae such as "in connection with". As the authorities, to which I turn below, demonstrate, what that formula means depends crucially on the particular statutory context in which it appears. In the present statutory context, as I have mentioned, Part 7A sets out in detail the various criteria which need to be satisfied before that charge will apply. Those criteria are objective ones, and require that a state of affairs exists or, in relation to some of the criteria, that it is "reasonable to suppose" that it exists. The legislation is not, in my judgment, unclear or uncertain.
  93. I turn to the main authorities on the phrase "in connection with", which appears in a number of different statutory contexts concerned with rating and taxation.
  94. In Coventry and Solihull Waste Disposal Co Ltd v Russell (Valuation Officer) [1999] 1 WLR 2093, at 2103, Lord Hope of Craighead said that the court must look closely at the surrounding words and the context of the legislative scheme:
  95. "The majority in the Court of Appeal held that it was a sufficient answer to the appellant's argument to construe the words 'in connection with' as meaning 'having to do with'. This explanation of the meaning of the phrase was given by McFarlane J in Re Nanaimo Community Hotel Ltd [1944] 4 DLR 638. It was adopted by Somervell LJ in Johnson v Johnson [1952] P 47 at 50-51. It may be that in some contexts the substitution of the words 'having to do with' will solve the entire problem which is created by the use of the words 'in connection with.' But I am not, with respect, satisfied that it does so in this case, and Mr Holgate did not rely on this solution to the difficulty. As he said, the phrase is a protean one which tends to draw its meaning from the words which surround it. In this case it is the surrounding words, when taken together with the words used in the Amending Order of 1991 and its wider context, which provide the best guide to a sensible solution of the problem which has been created by the ambiguity."

  96. In Barclays Bank this Court had to consider the phrase "in connection with" in the context of sections 596A and 612 of the Income and Corporation Taxes Act 1988. In giving the main judgment, Arden LJ applied the above dicta from Lord Hope in the specific context of the statutory provisions with which that appeal was concerned. It is important not to generalise too much from any specific decision, because all will depend on the particular statutory context, but I note that, at para 20, Arden LJ concluded that, in that case, a connection could be indirect. In principle that appears to me to be right.
  97. I also note that at para 26, Arden LJ said that, while all the relevant circumstances must be taken into account, that does not mean that all the facts must be given the same weight. That again seems to me to be the correct approach.
  98. Finally, I note that, at para 30, Arden LJ said:
  99. "There is no doubt that the court should, when interpreting a statutory provision, examine not just that provision but also the context in which it appears in the legislation in question. It may then be able to form a view as to the purpose of the provision in question and that knowledge may inform its thinking as to the choice of meaning to be offered where choices are available. The context of the provision in question, however, will not of itself justify the court in limiting the provision to that context, and thus reducing its apparent scope, unless there is some indication in the legislation that this is what Parliament intended. The effect of Mr Peacock's submission, is that the court should read down the definition of 'relevant benefits' to conform with the concept of a conventional 'retirement benefits scheme'. In my judgment, there is nothing in the legislation to justify this course. Indeed, the indications are the other way. Parliament has used a broad expression, namely the expression 'in connection with'. Having cast the net widely, Parliament has drawn it in particularly by imposing a limit that there should be a connection with service. The limitations prescribed by Parliament are the limitations that the court should apply. The context of occupational pension schemes cannot be used to narrow the phrase 'in connection with past service' yet further."

  100. In London Luton this Court had to consider the phrase "in connection with" in the context of section 360B of the Capital Allowances Act 2001. That provision provided that "qualifying expenditure" means capital expenditure incurred before the expiry date on, or in connection with "the conversion of a qualifying building into qualifying business premises [etc]". Having cited Coventry Waste, Whipple and Falk LJJ said, at para 63:
  101. "Coventry Waste therefore stands for the proposition that the words will usually take their meaning from those which surround it and the wider context, and that courts and tribunals may have to determine whether the words have a broad or a narrow meaning, understood in context. In literal terms, both meanings are possible."

  102. At para 64, they said:
  103. "In Revenue and Customs Comrs v Barclays Bank plc [2008] STC 476 ('Barclays'), Arden LJ observed that the words 'in connection with past service', which appeared in section 612(1) of the Income and Corporation Taxes Act 1988, could describe a 'range of links' (see para 18). This fits with Coventry Waste (to which Arden LJ referred) in suggesting that different meanings are possible. Arden LJ also referred at para 19 to the need to examine the function or purpose of the legislation, and at para 30 to the purpose of the legislation potentially informing the court's thinking where there is a choice of meaning."

  104. At para 69, they said:
  105. "These cases show that the meaning of 'on, or in connection with' is heavily dependent both on context and policy. The phrase might require what Robert Walker LJ referred to in Coventry Waste [1998] RA 427 as 'a strong and close nexus' or it might require 'a weak and loose one'. Bem-Odeco Ltd v Powlson introduces the concept of remoteness, which is another way of considering the same question."

  106. They then proceeded, at paras 70-76, to analyse closely the particular statutory context in that case. At para 77, they summarised their approach as follows:
  107. "(a) The first task is to construe the relevant legislation in order to determine the nature of the transaction to which that legislation was intended to apply … .
    (b) The answer to that first task, in this case, is that the words 'in connection with' as they appear in section 360B(1) are to be given a relatively narrow meaning. The expenditure incurred must, on a realistic assessment, have a strong and close nexus with the physical work on the building to qualify for BPRA.
    (c) The second task is to decide whether the actual transaction, viewed realistically, answers to that statutory description … ."

  108. What I derive from those authorities is that the phrase "in connection with" is a protean phrase, which must be read in the particular statutory context in which it appears. In accordance with normal principles of statutory interpretation, it must also be read having regard to the purpose of the legislative scheme in question. The phrase "strong and close nexus" was no doubt apt in the particular statutory context with which London Luton was concerned but that phrase should not be regarded as a gloss to be added to the statutory language wherever the phrase "in connection with" appears in tax legislation.
  109. The Rangers litigation

  110. I will address here an issue that arose before us as to the legislative history of the amendments to ITEPA that were made in 2011 and 2017. Mr Ghosh submits, and I would accept, that the explanation for the legislative history in the present context can be found in the different way in which the arguments in the Rangers litigation were presented as that case went up through the legal system from the FTT to the Supreme Court.
  111. The facts of that case arose before the amending legislation was enacted in 2011 which became Part 7A of ITEPA. As counsel for the taxpayers observed in Murray Group Holdings v HMRC [2012] UKFTT 692 (TC), at para 143, the need to introduce Part 7A tended to suggest that there was a lacuna in the charging provisions affecting trust arrangements like those in that case, which were similar to the present case. He argued that that reinforced his submission that liability for PAYE and National Insurance contributions did not arise. At first instance, HMRC submitted that the remuneration trust in the tax avoidance scheme was a mechanism for placing cash unreservedly in the hands of the employee, together with the advantage of avoiding tax. The submission was that the funds even at that stage, in other words as paid to the trust, were in truth the income of the employees. The loans were not genuine.
  112. The FTT rejected that submission and held that the arrangements were genuine; the payments into the trust became a loan and no more. They were not paid over absolutely or unreservedly for or to the order of the individual employee and so did not become their earnings or emoluments. Accordingly, there was no liability to PAYE or National Insurance contributions. HMRC's appeal to the UT was dismissed and there was a further appeal to the Inner House of the Court of Session, comprising the Lord Justice-Clerk (Lord Carloway), Lord Menzies and Lord Drummond Young: [2015] CSIH 77; [2016] STC 468. This appeal was heard in November 2015.
  113. By now HMRC's submission had developed. As recorded at para 36, HMRC made the following submission:
  114. "HMRC have appealed against the decision of the Upper Tribunal on two grounds. First, it is contended that the payment of monies by the relevant employer to the Principal Trust, or alternatively the appointment of monies by the Principal Trust to a sub-trust set up for the benefit of an employee, constituted a payment of taxable earnings, taxable in the hands of the employees whose services were so rewarded. On this basis, it is said that the scheme amounted to a mere redirection of earnings which did not remove the employee's liability to income tax. Of the two alternatives, it is submitted that the first should be preferred: the payment of monies by the relevant employer to the trustees of the Principal Trust triggered liability to tax. Secondly, HMRC contend that when monies were appointed by the trustee of the Principal Trust to the relevant sub-trust, that appointment was made in such a way that those monies were at the unreserved disposal of the employee, who was appointed protector of the sub-trust, and hence constituted a payment of taxable earnings, taxable in the hands of the employee. In advancing that contention, they relied on the Ramsay principle (Ramsay (WT) Ltd v IRC, supra) as explained in Garforth v Newsmith Stainless Ltd, [1979] 1 WLR 409, and Aberdeen Asset Management PLC v HMRC, 2014 SC 271. The argument as presented to the court was that each of the employees was appointed protector of the sub-trust set up for the benefit of his family. Powers were conferred on the protectors under the deeds constituting the sub-trusts, including a power to alter the trust purposes. That power could be used in such a way that the only beneficiary was the employee. In that way the funds were at the employee's unreserved disposal."

  115. The Inner House allowed HMRC's appeal on the following grounds:
  116. "[56] The fundamental principle that emerges from these cases appears to us to be clear: if income is derived from an employee's services qua employee, it is an emolument or earnings, and is thus assessable to income tax, even if the employee requests or agrees that it be redirected to a third party. That accords with common sense. If the law were otherwise, an employee could readily avoid tax by redirecting income to members of his family to meet outgoings that he would normally pay: for example to a trust for his wife, as in Hadlee, or to trustees to pay for his children's education or the outgoings on the family home. It follows that, if the principle applies, it is irrelevant that the redirection is through the medium of trust arrangements. It is equally irrelevant that the trustees who receive the payment, at whatever remove, exercise a genuine discretion as to what happens to the funds. The funds are ultimately derived as consideration for the employee's services, and on that basis they are properly to be considered emoluments or earnings. Indeed, in Brumby v Milner, the existence of a discretion in the trustees as to the benefits taken by employees was taken as a factor pointing towards the conclusion that the payments were derived from employment.
    [57] This principle is ultimately simple and straightforward – indeed, so straightforward that in cases where elaborate trust or analogous relationships are set up it can easily be overlooked. That, it seems to us, is what happened before the First-tier and Upper Tribunals in this case."

  117. The case reached the Supreme Court under the title RFC 2012 plc (in liquidation) (formerly Rangers Football Club plc) v Advocate General for Scotland [2017] UKSC 45; [2017] 4 All ER 654. Giving the main judgment (with which the other members of the Court agreed), Lord Hodge JSC noted, at para 3, that, by the time the case had reached the Inner House, HMRC advanced a legal argument which had not been presented to, or at least had not been developed before, the Tribunals. This was that the payment of the sums to the remuneration trust involved a redirection of the employee's earnings and accordingly did not exclude those earnings from the charge to income tax. This argument had been accepted by the Inner House. The further appeal to the Supreme Court was dismissed.
  118. At para 70, Lord Hodge noted the enactment of Part 7A of ITEPA. It is contended on behalf of the Appellant that its interpretation of that Part is consistent with what Lord Hodge said there: that the purpose of Part 7A was to "tax as employment income, among other things, the value of loans provided by third parties to employees under arrangements to reward employment". This is, with respect, again to read the dicta of a judge as if they were the words of a statute. The Rangers litigation was concerned with legislation which preceded the enactment of Part 7A and the issue of interpretation which arises in the present case was not one that was before the Supreme Court in that case. It is doubtful that the Supreme Court will have had the benefit of the full arguments as to the interpretation of Part 7A which this Court has had.
  119. Lord Hodge also noted the further legislation in the Finance Act 2017, section 15 and Schedule 6, to amend Part 7A. But, he observed, those provisions, which are designed further to counter tax avoidance schemes, could not affect the interpretation of prior tax legislation. That was clearly right but the fact that Parliament thought the 2017 Act was necessary may be explicable by reference to the procedural history of the Rangers litigation: it was enacted in the period between the decision of the Inner House in that case and the decision of the Supreme Court. I therefore turn to consider the amending legislation of 2017.
  120. The 2017 legislation

  121. Part 7A of ITEPA was amended by the Finance Act 2017 but, unusually, the amendments were made retrospective so as to take effect in relation to relevant steps taken on or after 6 April 2011, that being the date when Part 7A itself had come into force. The reason why retrospective legislation is unusual is because Parliament is well aware of the potential unfairness that may be caused to citizens if they have arranged their affairs in accordance with the law as it was at the relevant time and that law is subsequently changed. But in this context Parliament acted as it did in order to mitigate the potential unfairness of the interpretation of the pre-2011 legislation which HMRC had successfully advanced in the Rangers litigation before the Inner House. It was recognised that that interpretation could lead to taxation at different stages of the same arrangements under Part 7A.
  122. Section 554Z11B provides as follows:
  123. "(1) Section 554Z11C applies if the conditions in subsections (2) and (3) are met.
    (2) The first condition is that there is overlap between –
    (a) the sum of money or asset ('sum or asset P') which is the subject of the relevant step, and
    (b) a sum of money or asset ('sum or asset Q') by reference to which, on an occasion that occurred before the relevant step is taken, A became subject to a liability for income tax ('the earlier tax liability').
    (3) The second condition is that at the time the relevant step is taken –
    (a) an amount is payable by a person (the 'liable person') in respect of the earlier tax liability, but the whole or part of that amount is unpaid and not otherwise accounted for, and
    (b) the liable person has not agreed any terms with an officer of Revenue and Customs for the discharge of the earlier tax liability."

  124. That then takes us to section 554Z11C, which provides as follows:
  125. "(1) In this section –
    (a) 'the earlier charge' means so much of the earlier tax liability as relates to the overlap between sum or asset P and sum or asset Q, and
    (b) 'the Chapter 2 overlap charge' means so much of the Chapter 2 tax liability as relates to the overlap between sum or asset P and sum or asset Q.
    (2) The amount of a tax liability that relates to the overlap between sum or asset P and sum or asset Q is to be determined on a just and reasonable basis.
    (3) Subsection (4) applies where, after the relevant step is taken, an amount (the 'earlier charge paid amount') is paid in respect of all or part of –
    (a) the earlier charge, or
    (b) any late payment interest in respect of the charge.
    (4) An amount equal to the earlier charge paid amount is treated as a payment on account of –
    (a) the Chapter 2 overlap charge, or
    (b) if that charge has been paid in full, any late payment interest payable in respect of the charge.
    (5) Except where subsection (10) applies, subsection (6) applies where an amount (the 'Chapter 2 paid amount') is paid in respect of all or part of –
    (a) the Chapter 2 overlap charge, or
    (b) any late payment interest in respect of the charge.
    (6) An amount equal to the Chapter 2 paid amount is treated as a payment on account of –
    (a) the earlier charge, or
    (b) if the earlier charge has been paid in full, any late payment interest payable in respect of the charge."

  126. Mr Firth submits that it is impermissible to rely on subsequent legislation when what falls to be construed in the present appeal is Part 7A as originally enacted in 2011. But that is not the reason why Mr Ghosh refers to the amending legislation of 2017. It is rather to make the point that, where Parliament recognises that there is a risk of double taxation of the same income under Part 7A, it is well capable of taking express steps to remove that risk. In my judgment, for reasons I have given earlier, there is no such risk in the present context.
  127. Ground 2: application of the UT's test

  128. Ground 2 is that the UT erred in failing to consider whether the connection identified was displaced and/or applied the wrong approach to that question. It is contended that, in applying its own test, the UT failed to consider whether the apparent connection between the loans to Dr Thomas and his employment had been "displaced" in the circumstances of this case.
  129. Under this ground criticism is made of the reasoning of the UT at para 131(4), where it summarised the propositions of law which can be drawn from Barclays Bank as including:
  130. "A connection once established is unlikely to be displaced by other factors or connections."

    It is submitted that that is not correct. The Court of Appeal in Barclays Bank did not say that any connection, once established, is unlikely to be displaced. It said that a connection based on the reason for choosing the recipient of a payment is unlikely to be displaced: see para 22 in the judgment of Arden LJ, where she said that:

    "… once recipients have been chosen by the employer or trustee of the scheme for their connection with the scheme, the presence of that link is unlikely to be lost and the court must give that factor, that is the criterion for selection of those entitled to receive the one-off payments, great weight."

  131. It is further submitted that the UT's failure to consider this question is so serious that the issue of potential displacement should be remitted to the FTT.
  132. I do not accept those submissions. Mr Firth relies upon a dictum by Arden LJ in Barclays Bank but it seems to me that this again falls into the trap of reading what was said by a judge as if it were set out in a statute. Arden LJ was not in that passage, which was in any event to do with another statutory context, seeking to set out a legal test but was pointing to one of a number of factors which could give rise to the conclusion that the "in connection with" test is or is not satisfied.
  133. Ground 3: adequacy of the UT's reasons

  134. Ground 3 is that the UT erred in failing to explain why the connection in this case amounted to a "strong and direct" connection and erred in failing to properly apply its own test and reached an unsustainable conclusion.
  135. Mr Firth complains that the reasons set out by the UT for finding that its own test of "in connection with" was satisfied were inadequate: those reasons are set out principally at para 150 of its judgment, which I have quoted above.
  136. It is also submitted that the UT's essential reasoning was that because Dr Thomas, as director, ran the business that produced the profits that financed the loans, that amounts to a strong and direct link with the loans. However, by that erroneous logic, anything the company did with the money produced by the business would have a strong and direct connection with his employment, even (for example) donating money to a charity or putting it in a bank account for it to earn interest.
  137. The difficulty with these suggestions is that they are unlikely to fall within the other provisions of Part 7A so that the charge will not arise at all. Mr Firth accepted this at the hearing, at least in relation to donation to a charity. But if otherwise a particular act does fall within the charging provision, I can see no reason why the intention of Parliament should not be given its proper effect.
  138. It is further submitted that the UT's reasoning hinges squarely on the fact that Dr Thomas was the sole director of the Appellant, and therefore its "guiding mind". It is further submitted that the UT erred in: (1) failing to put the strong and direct connection test in its full factual context, (2) failing to consider or explain why the proposed connection was a connection in the first place, (3) deciding that there was a direct connection when the connection was indirect at best, and (4) deciding that there was a strong connection on the facts.
  139. It is also contended that, on the facts of the present case, the following conclusions of the FTT were correct: (1) Dr Thomas's employment/ directorship was not part of the reason for the loans, (2) there is nothing suggesting that the funds were intended as a reward for Dr Thomas's services, (3) their purpose was to provide him with a return on his investment as a shareholder, (4) they comprised the Appellant's whole profits, and were paid sporadically, (5) the only driver for determining how much was to be loaned/contributed was the corresponding deduction in corporation tax, (6) those profits would otherwise have been paid as dividends, and (7) the profits arose from all of its employees' work, not only that of Dr Thomas.
  140. I would reject these submissions. The adequacy of reasons always depends on the specific context and bearing in mind that the parties to which they are addressed will be familiar with the issues. Prolixity is not to be encouraged in judgments. In my judgment, the Upper Tribunal set out its reasoning adequately.
  141. The other complaints that are made under this ground of appeal are in essence criticisms of the UT's assessment of matters of fact and degree. But the UT was entitled to interfere with the assessment by the FTT because the FTT had erred in law (for reasons I have explained under ground 1 above). On the footing that the UT was applying the correct test in law (which is the premise on which ground 3 is founded), I can see no proper basis for this Court to interfere with the UT's assessment.
  142. Ground 4: whether the arrangement was a "means of" or "concerned with" the relevant connection

  143. Ground 4 is that the UT erred in failing to consider whether the arrangement was a "means of" or "concerned with" providing payments with the relevant connection. The Appellant submits that it was not sufficient to satisfy section 554A(1)(c) of ITEPA that there was a connection to the individual's employment, but that it is also necessary to demonstrate that the arrangement in question was a "means of" or "concerned with" providing loans with that connection.
  144. Before the UT the Appellant's position was that a link between the payments and Dr Thomas's employment was not part (let alone an essential part) of what the arrangement sought to achieve. It contends that the UT acknowledged this at para 140 of its judgment but failed to address it when applying the test at para 150. It is submitted that, if the UT had done so, given the FTT's finding that employment was no part of the reason for the payments, a connection including employment could not be regarded as part of what the arrangement was seeking to achieve (and certainly not part of the "essence" of what it was seeking to achieve).
  145. I would not accept these submissions. The UT was clearly entitled to take the view that the arrangements, taken as a whole, did fall within the meaning of the legislation, in particular "means of" or "concerned with". In substance this argument appears to try to resurrect the argument that has already failed under ground 1, namely that employment must be part of the reason for the payment.
  146. Ground 5: the deductibility issue

  147. Ground 5 is that the UT erred in overturning the FTT's conclusion on corporation tax as it identified no error of law in the conclusion that the tax advantage was not an end in its own right. It is contended that, if Ground 4 above does not succeed, the UT must have found that the alleged connection with the employment of Dr Thomas was essentially the arrangement's trading purpose.
  148. Mr Blades, who took the lead in making submissions for the Appellant on this issue, complains that the UT impermissibly interfered with a finding of fact which had been made by the FTT. He reminds us that an appeal to the UT lies only on a point of law and submits that the question of whether an expense is deductible because it was incurred wholly and exclusively for the purpose of a trade is a question of fact and certainly not a question of law.
  149. The right of appeal to the UT is "a right to appeal to the Upper Tribunal on any point of law arising from a decision made by the First-Tier Tribunal …": see section 11(1) of the Tribunals, Courts and Enforcement Act 2007. There were similar provisions historically, when tax appeals used to be considered by the General or Special Commissioners and there could then be an appeal on a point of law to the High Court. Similarly, any appeal from the Upper Tribunal to this Court must be on a point of law: see section 13(1) of the 2007 Act.
  150. The phrase "wholly and exclusively" is a familiar one and has long been used in tax legislation. Section 74 of the Income and Corporation Taxes Act 1988 ("ICTA") provides that:
  151. "(1) … In computing the amount of the profits to be charged to corporation tax under case I or case II of schedule D, no sum shall be deducted in respect of –
    (a) any disbursements or expenses, not being money wholly and exclusively laid out or expended for the purposes of the trade or profession;
    …"

  152. As Lord Davey put it in Strong & Co, of Romsey, Ltd v Woodifield [1906] AC 448 at page 453, the words "for the purposes of the trade" mean "for the purpose of enabling a person to carry on and earn profits in the trade … . It is not enough that the disbursement is made in the course of, or arises out of, or is connected with, the trade, or is made out of the profits of the trade. It must be made for the purpose of earning the profits."
  153. But the law has had to grapple with the problem that there may be more than one purpose of a transaction; and there may be an incidental effect of a transaction which is not necessarily one of its purposes.
  154. The decision of the House of Lords in Mallalieu v Drummond [1983] 2 AC 861 concerned the question whether expenses incurred by a barrister for professional clothes to be worn in court were deductible as expenses of a profession under schedule D. The General Commissioners found that the taxpayer had a dual purpose, namely to enable her to earn profits in her profession and to enable her to be properly clothed during the time she was engaged in her professional activity and accordingly dismissed her appeal. That decision was reversed by the High Court on the ground that the conclusion was not consistent with their findings of fact. The Court of Appeal dismissed an appeal by the Crown but the House of Lords allowed the Crown's appeal. Lord Elwyn-Jones dissented. The main speech was given by Lord Brightman.
  155. At page 871A, Lord Brightman said that the appeal was "basically concerned with the distinction between object and effect." He set out the primary facts as found by the General Commissioners. At page 875A, Lord Brightman said that the question was "whether there was evidence which entitled the Commissioners to reach the conclusion that the object of the taxpayer in spending this money was not only to serve the purposes of her profession, but was also to serve her private purposes of providing apparel with which to clothe herself." Lord Brightman found himself unable to accept the narrow approach which had been adopted by the High Court and the Court of Appeal. He rejected the notion that the object of a taxpayer is inevitably limited to the particular conscious motive in mind at the moment of expenditure. He said that not only were the Commissioners entitled to reach the conclusion that the taxpayer's object was both to serve the purposes of her profession and also to serve her personal purposes, but he himself would have found it impossible to reach any other conclusion.
  156. The decision in Mallalieu was described as "seminal" by Lord Oliver of Aylmerton in MacKinlay v Arthur Young McClelland Moores & Co [1990] 2 AC 239, at page 255F. Having noted that in MacKinlay much of the argument had been addressed to the question whether the purpose of a particular payment falls to be ascertained objectively or by reference only to the subjective intention of the taxpayer, Lord Oliver thought that the difficulty suggested was more illusory than real. The question in each case is: what was the object to be served by the disbursement or expense? As was pointed out by Lord Brightman in Mallalieu, this cannot be answered simply by evidence of what the payer says that he intended to achieve. "Some results are so inevitably and inextricably involved in particular activities that they cannot but be said to be a purpose of the activity." At page 256A, Lord Oliver emphasised that it was a fallacy to confuse the purpose of the expenditure with the motives of the persons making it.
  157. In Scotts Atlantic Management Ltd v HMRC [2015] UKUT 66 (TCC), the Upper Tribunal (Warren J and Judge Hellier) had to consider section 74 of ICTA. The FTT had found that the expenses had a dual purpose. One purpose was to implement a prearranged scheme in order to obtain a tax deduction, another was to benefit employees and directors through the medium of an employment benefit scheme. Because of that dual purpose, the FTT held that the expense was not "wholly and exclusively" for the purposes of the trade and was not therefore deductible. The UT dismissed the appeal by the taxpayer on this point because the FTT had been entitled to find as it had done.
  158. At para 47, the UT said:
  159. "The effect of the statutory provisions is well known. Expenditure is deductible only if it is incurred wholly and exclusively for the purposes of the trade. The word 'exclusively' means that if the expense was also incurred for some other purpose, it is not deductible. The 'wholly and exclusively' issue is to be determined by the object of the taxpayer in incurring the expense."

  160. At para 48, the UT said that the question of what was a taxpayer's object "is one of fact to be assessed by the FTT". For this proposition it cited e.g. Romer LJ in Bentleys, Stokes and Lowless v Beeson [1952] 33 TC 491, at pages 503-504. The UT continued that it is "only if its finding is one which no reasonable Tribunal could have reached, being properly instructed as to the law and properly applying that law, that it may be disturbed on an appeal on a point of law to this Tribunal." However, in determining the object of a taxpayer in incurring an expense, the FTT must observe a number of principles (and a failure to do so may render its conclusion erroneous in law).
  161. First, the FTT needs to look into the taxpayer's mind at the moment when the expenditure is made. Secondly, the object of the expenditure must be distinguished from its effect. If the sole object of the expenditure was the promotion of the business, the expenditure is deductible, even though it necessarily involves other consequences. The UT cited Millett LJ in Vodafone Cellular Ltd v Shaw 69 TC 376, at page 437:
  162. "The object of the taxpayer in making the payment must be distinguished from the effect of the payment. A payment may be made exclusively for the purposes of the trade even though it also secures a private benefit. This will be the case if the securing of the private benefit was not the object of the payment but merely a consequential and incidental effect of the payment."

  163. At para 52, the UT said that what the FTT must not do is to conclude that merely because there was an effect, that effect was an object. But, at para 53, the UT said that some results are so inevitably and inextricably involved in particular activities that they cannot but be said to be a purpose of the activity: see MacKinlay, in the passage I have cited above.
  164. On the facts of Scotts Atlantic, the UT went on to conclude that the FTT had not erred in law because it was entitled to find that there were two purposes and not merely one purpose and an incidental effect.
  165. Mr Blades submits that the evaluation of the facts in the light of the correct legal test is one that can only be interfered with by the UT if the FTT has taken into account irrelevant matters, failed to take account of relevant matters or has reached a conclusion which it could not reasonably have reached. He relies on well-known authority from the House of Lords and Supreme Court, including the classic case of Edwards v Bairstow [1956] AC 14, which concerned the question of whether something constituted a "trade". He points out that that was not a case about the finding of primary facts as such but concerned the categorisation of those facts.
  166. Mr Blades further submits that the question does not become one of law simply because one of the parties (and of course it could be the taxpayer in the future, although here it happens to be HMRC) does not dispute the primary findings of fact of the FTT.
  167. Turning to the present case, Mr Blades submits that Judge Morgan correctly understood that, in Scotts Atlantic, the UT had held that a choice as to how a payment is made which is dictated by the tax consequences does not mean that there is a duality of purpose. Further, if the FTT in Scotts Atlantic had found a duality of purpose in incurring expenditure because the taxpayer had decided to incur it in a way that avoided tax, that would have been an error. Mr Blades submits that Judge Morgan made her own finding of fact in the present case on whether tax avoidance was an end in itself of the payment (as opposed to the scheme). This was not challenged by HMRC on Edwards and Bairstow grounds and therefore, he submits, it was not open to the UT to interfere with that finding.
  168. On behalf of HMRC it is submitted that Judge Morgan did not in fact make a finding of fact in this context. Rather, what she did was to hold contingently if (and only if) Dr Thomas was taxable to "earnings", that MDPL's purpose was to pay him earnings and its purpose of obtaining a corporation tax deduction was merely incidental. It is submitted that the terms in which para 159(1) and (2) of the FTT judgment were couched makes it clear that it was not there making findings of fact but was considering, as a matter of its perceived logic, what would "follow" on the basis of its assumption that its test for earnings had been satisfied.
  169. Further, it is submitted that any such finding would have been inconsistent with the facts as found or agreed, in particular at para 3 of the FTT judgment. Accordingly, it is submitted, the correct reading of para 159 of the FTT judgment is that it amounts to legal analysis on the basis of assumed facts other than those in fact found by the FTT. In those circumstances, it is submitted that the question whether the "wholly and exclusively" issue is a question of fact or a question of law is in large part redundant.
  170. It seems to me that there may be a tension on that issue between the decision of this Court in Investec Asset Finance plc v HMRC [2020] EWCA Civ 579; [2020] STC 1293, at paras 42-46, and the earlier decision of this Court in Vodafone, at page 436 (Millett LJ) but that it is unnecessary to resolve that tension in the present appeal.
  171. Mr Ghosh relies on the decision of this Court in Investec, at paras 42-46. That case concerned the "wholly and exclusively" test in the context of Capital Contributions, which was a cost incurred by the taxpayers in respect of two Leasing Partnerships. Issue 2 in the case was whether the expenses were incurred wholly and exclusively for the purposes of the taxpayers' trade. The FTT decided that the expenditure was incurred wholly and exclusively for the purposes of the taxpayers' respective solo financial trades. The UT allowed HMRC's appeal on that issue. This Court, on further appeal, held that the UT had been correct to hold that on the facts Capital Contributions were not wholly and exclusively incurred for the purposes of the solo financial trades.
  172. Giving the main judgment, Rose LJ said, at para 42, that the appellants argued that the UT had erred in reversing the FTT on this point. They submitted that there had been no Edwards v Bairstow challenge by HMRC from the findings of fact by the FTT. Since Vodafone establishes that the question whether expenditure is made wholly and exclusively for the purposes of the taxpayer's trade is a question of fact, it was not open to the UT to overturn this in the absence of such a challenge.
  173. At para 43, Rose LJ said that these criticisms had no merit because the UT's decision was not based on a disagreement with the FTT over the facts. The FTT had set out a detailed narrative of the factual background to the case. At para 45, Rose LJ concluded that, on those findings of fact, the UT was right to hold that the Capital Contributions were not wholly and exclusively incurred for the purposes of the solo financial trades and there was no need to disturb any finding of fact by the FTT in order to arrive at that result.
  174. At para 46, Rose LJ said:
  175. "The question for the UT and now for us is whether, given those facts, the Capital Contributions were, as a matter of law, wholly and exclusively incurred for the purposes of the solo financial trades. In my judgment they clearly were not. …" (Emphasis added)

  176. In contrast, in Vodafone, at page 436, Millett LJ said:
  177. "Whether a payment is made exclusively for the purpose of the taxpayer company's trade or partly for that purpose and partly for another is a question of fact for the commissioners. The court can interfere only if the commissioners have made an error of law in reaching their conclusion. The principles on which the court acts are to be found in the speech of Lord Radcliffe in Edwards (Inspector of Taxes) v Bairstow [1956] AC 14, 36 TC 207 and are too well known to repeat. It is sufficient to say that the court will interfere where the true and only reasonable conclusion from the facts found by the commissioners contradicts the determination." (Emphasis added)
  178. Millett LJ continued, at page 437:
  179. "The leading modern cases on the application of the exclusively test are Mallalieu v Drummond (Inspector of Taxes) [1983] STC 665, [1983] 2 AC 861 and MacKinlay (Inspector of Taxes) v Arthur Young McClelland Moores & Co [1989] STC 898, [1990] 2 AC 239. From these cases the following propositions may be derived. (1) The words for the purposes of the trade mean to serve the purposes of the trade. They do not mean for the purposes of the taxpayer but for the purposes of the trade, which is a different concept. A fortiori they do not mean for the benefit of the taxpayer. (2) To ascertain whether the payment was made for the purposes of the taxpayer's trade it is necessary to discover his object in making the payment. Save in obvious cases which speak for themselves, this involves an inquiry into the taxpayer's subjective intentions at the time of the payment. (3) The object of the taxpayer in making the payment must be distinguished from the effect of the payment. A payment may be made exclusively for the purposes of the trade even though it also secures a private benefit. This will be the case if the securing of the private benefit was not the object of the payment but merely a consequential and incidental effect of the payment. (4) Although the taxpayer's subjective intentions are determinative, these are not limited to the conscious motives which were in his mind at the time of the payment. Some consequences are so inevitably and inextricably involved in the payment that unless merely incidental they must be taken to be a purpose for which the payment was made."

  180. Millett LJ continued that, once the object of an action has been ascertained, "the characterisation of that object as serving the purposes of the trade of one particular company or another is not a finding of primary fact, but a conclusion based upon the primary facts."
  181. For my part, I am content to apply the principles as set out by Millett LJ in Vodafone. Even on that basis, I would hold that the UT in the present case was correct to conclude that the purpose in this case was not for the purposes of MDPL's trade but rather for the benefit of Dr Thomas. It was a tax avoidance purpose.
  182. In the present case, the FTT dealt with the deductibility issue at paras 145-161. It set out the relevant authorities, which I have also set out above, including Scotts Atlantic. The essential reasoning of Judge Morgan appears at para 159(2) of the judgment. Having regard to the decision in Scotts Atlantic, in particular at paras 65-74, she could not see that MDPL could be taken to have had a separate object of obtaining a tax deduction in incurring the relevant expenses. The obtaining of a tax deduction was the "ordinary, intended or realistically expected outcome", in other words a consequential or incidental benefit of expending sums which, according to MDPL's "true" intent, "were incurred to reward Dr Thomas for his services as Director." As the FTT recorded at para 160, the other member of the Tribunal (Mr Woodman) did not share that view. In his view, MDPL pursued a scheme to such an extent that the planned tax efficiency was an object in itself in addition to that of rewarding Dr Thomas. Accordingly, he did not consider the relevant expenditure was incurred wholly and exclusively for the purposes of its trade.
  183. The UT in the present case allowed HMRC's appeal on this point, at paras 169-171, which I have quoted above. In essence, they agreed with Mr Woodman and disagreed with Judge Morgan, whose view they considered constituted an error of law: see para 170. Although they did not refer in terms to Edwards v Bairstow, the strength of the language used (e.g. "impossible" to conclude that, simply because these payments were caught by the anti-avoidance provisions of Part 7A of ITEPA, the sums were expended wholly and exclusively for the purposes of the trade of MDPL, "that is simply unrealistic") makes clear that in substance the UT were holding that, on the facts as found by the FTT, it was not reasonably open to the FTT to reach the conclusion that the expenses were deductible.
  184. I agree with the substance of the UT's decision and would dismiss the Appellant's appeal on ground 5.
  185. Before I leave this issue, I should address one other authority that was cited by Mr Blades: A D Bly Groundworks and Civil Engineering Ltd v HMRC [2024] UKUT 104 (TCC), which concerned the "wholly and exclusively" test under section 54 of the Corporation Tax Act 2009. In that case, the UT (Judges Thomas Scott and Greenbank), applied the decision in Scotts Atlantic and dismissed the taxpayers' appeal against the adverse judgment of the FTT.
  186. Mr Blades relies in particular on what was said by the UT at para 35 of its judgment:
  187. "An appeal to this tribunal lies only on a point of law: s 11(1) of the Tribunals, Courts and Enforcement Act 2007. While there cannot be an appeal on a pure question of fact which is decided by the FTT, the FTT may arrive at a finding of fact in a way which discloses an error of law. That is clear from Edwards v Bairstow, in which Viscount Simonds referred to making a finding without any evidence or upon a view of the facts which could not be reasonably entertained, and Lord Radcliffe described as errors of law cases where there was no evidence to support a finding, or where the evidence contradicted the finding or where the only reasonable conclusion contradicted the finding. Lord Diplock has described this ground of challenge as 'irrationality'. In the well-known words of Evans LJ in Georgiou v Customs and Excise Commissioners [1996] STC 463 at 476:
    … for a question of law to arise in the circumstances, the appellant must first identify the finding which is challenged; secondly, show that it is significant in relation to the conclusion; thirdly, identify the evidence, if any, which was relevant to that finding; and fourthly, show that that finding, on the basis of that evidence, was one which the tribunal was not entitled to make. What is not permitted, in my view, is a roving selection of evidence coupled with a general assertion that the tribunal's conclusion was against the weight of the evidence and was therefore wrong. A failure to appreciate what is the correct approach accounts for much of the time and expense that was occasioned by this appeal to the High Court."

  188. In my judgment, that decision does not assist to resolve the issues in the present appeal. The passage I have quoted was directed against an attempt to challenge a finding of fact on the ground that the evidence does not reasonably support that finding. The present case concerns a different issue, similar to the one which has arisen in a number of earlier cases, including cases which have reached the highest court, which is where the findings of fact are not disputed but the assessment to be reached on the basis of those findings of fact by reference to the "wholly and exclusively" test is challenged.
  189. Conclusion

  190. For the reasons I have given, I would dismiss this appeal.
  191. Lady Justice Whipple:

  192. I agree.

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