The first appeal from the Court of Session to the Supreme Court

3 February 2010

Gray's Timber Products Ltd v HMRC [2010] UKSC 4

This was the first appeal from the Court of Session to the Supreme Court and also the first tax appeal heard by the Supreme Court.

The case was concerned with taxation of a director's share incentives. The director had been given an incentive to build up the business of a company. It took the form that, if the company was sold, he would receive a larger amount for his shares than the other shareholders received for theirs. HMRC contended that this additional amount should be treated as income under Part 7 of the Income Tax (Earnings and Pensions) Act 2003, since his shares had been sold for more than market value. The Court of Session agreed (by a majority) with HMRC, and the taxpayer appealed. The Supreme Court had to consider a series of House of Lords cases dealing with the concept of market value in order to decide whether the rights the director personally enjoyed in his shares were or were not reflected in their market value. The Supreme Court held that they were not. It agreed with HMRC that the sums received by the director over and above market value therefore fell under the charge to income tax. The case will be relevant in deciding how best to structure share incentive schemes in company arrangements and private equity investments.

David Johnston QC of Axiom Advocates appeared for HMRC.

http://www.supremecourt.gov.uk/decided-cases/index.html