IR35 Case 12 - Offshore trusts
Key lessons from this case
- Resigning without a fundamental breach of employee terms and conditions or trust in the employer relationship is not grounds for a constructive dismissal claim
- Disclosing an offshore employee tax benefit scheme designed for tax efficiency and that had been submitted to the IR did not protect the employee under whistle-blowing regulations
- A qualifying disclosure under whistle-blowing regulations must be information regarding a criminal offence or that failing in a legal obligation, like complying with tax laws.
Summary of the case
Background
Patrick Milne was a broker and trading desk manager for The Link Asset Security Company Ltd (LASC) working on trades of derivative financial products. He was suspended pending an investigation into performance and conduct issues.
Before a formal meeting with his employer, LASC, Mr Milne resigned, claiming the LASC disciplinary process would damage his career. The case went to a tribunal where Mr Milne alleged constructive dismissal and that he was subject to pressure because he was not happy with a trust benefit tax scheme (EBT) offered to senior employees, even though it had been submitted to the IR.
Why did the Inland Revenue act?
The IR was not involved in this case, as it was an Employment Appeal Tribunal (EAT). Although there was a trust benefit tax scheme that had been declared to the IR, there was no indication in this judgement that they had acted.
Why did the contractors appeal?
Mr Milne, an employee of LASC and not a contractor, appealed to the EAT on three grounds:
- He had been constructively dismissed from his job
- He felt his original tribunal did not consider his whistle-blowing appeal with sufficient weight
- He felt he should not have to pay costs to his former employer.
The whistle-blowing element was one of the key points for Mr Milne, wanting to disclose the existence of what he felt was a highly suspect tax avoidance scheme (although the Judge felt this element of the appeal was opportunistic). Mr Milne also alleged that LASC had fabricated evidence against him because of his concern over the scheme.
Who won and why?
LASC won the appeal and Mr Milne also had to pay the costs he was allocated in the original case.
The Judge was satisfied that:
- There had not been a fundamental breach of terms of employment warranting constructive dismissal; in fact LASC were trying to make amends despite having poor in-house disciplinary procedures
- There was no evidence that the tax scheme was of the nature that its disclosure applied under whistle-blowing regulations; the scheme had been submitted to the IR for approval and if it presented a tax loophole the tribunal was satisfied that the IR would take action
- The tribunal rejected the claim that LASC had fabricated evidence against Mr Milne because of his opposition to the tax scheme; Mr Milne had joined the scheme on advice of his accountants and wife
- The original tribunal had considered the whistle-blowing element but said that there was no evidence that whistle-blowing regulations applied in this case given the nature of the disclosure by Mr Milne.
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