Published on 15 March 2024. See original article here

One minute with…David Pett

David Pett is a tax barrister at Temple Tax Chambers. Whilst he advises on all direcct taxes, David is best known for his advice on the income tax, PAYE, NICs and CGT aspects of employees’ and directors’ remuneration, incentives, and all aspects of employment-related securities and employee share plans.

What’s keeping you busy at work?

At present, I am principally fielding technical queries about the disguised remuneration rules, employee share schemes and sales of companies to employee-ownership trusts (“EOTs”), although my practice extends to all direct taxes and related trust and company laws.

If you could make one change to a tax law or practice (anywhere in the world) what would it be (and why)?

It would be to allow trustees of a bona fide employees’ trust holding ordinary shares of the principal class in the employer company or group to receive distributions free of UK tax provided that, within, say, 30 days, they are fully distributed amongst beneficiaries on an “all-employee and similar terms” basis. Subject to safeguards against abuse, such amounts should then be taxed as dividend, not employment, income in the hands of existing and ex-employees. This would encourage the collective ownership of shares in (especially P/E-backed) companies, and meaningful financial participation, for the benefit of all of a company’s employees.

Is there anything you know now that you wish you’d known at the start of your career?

How enjoyable and intellectually satisfying life as a tax barrister can be. I transferred from practising as a solicitor in 2017 but should have done so 20 years ago! The support of my clerks and of other members of chambers has been fantastic and helped me to produce two new tax books in 2021 and 2022 (Claritax guides to Disguised Remuneration and Employee Ownership Trusts), and to accept instructions on, and deal with, some very challenging and high-value matters. Being entitled to lunch in Hall in the Inns of Court is also a tremendous benefit.

Who do you see as your mentors over the years?

David Gottlieb, then head of tax at Clifford-Turner (and who died prematurely at the age of just 39), in the early 1980s, instilled in me both the need to examine all the detail and the maxim “always assume you are wrong and question your own opinion” (He would then add: “always assume your adversary is more right than you are…. but still assume they too are wrong.”). He gave me the time to study, understand and absorb the tax, trusts and company legislation without the pressure to meet financial targets. It was a fantastic training.

Is there a recent tax case has caught your eye (and why)?

The 2023 decision of the Supreme Court in HMRC v Vermilion Holdings Limited has given rise to widespread uncertainty as to what is and is not an employment-related security or option, falling within the charging provisions of Part 7, ITEPA 2003. The ratio is that the deeming provision in s471(3) is a “bright line rule”, but the conflation of identifying who provides shares or share options with that of identifying who provided the right or opportunity for an employee to acquire them, has muddied the waters.

What should we be looking out for later this year?

Getting one’s head around the proposed new residence-based tax regime for non-doms will be a challenge this year, but an important issue ignored in the Budget, is the ongoing plight of those lower-paid employees caught in the Loan Charge scandal as a consequence of HMRC’s failure to act effectively, or at all, when tax avoidance schemes for contractors and others were being peddled in full sight. The resulting penury for so many caught up in HMRC’s zealous efforts to recover tax from the victims, rather than the promotors of such arrangements, in a scandal not dissimilar to that of the Post Office saga.

Finally, you might not know this about me but…

Since a teenager, I have pursued a parallel career as an orchestral timpanist. This has afforded opportunities to play much of the symphonic repertoire and in some of the finest concert venues in Europe. There is nothing like participating in a performance of a Tchaikovsky or a Mahler symphony for shedding frustrations and angst. I still enjoy time spent at the back of a large ensemble of musicians – much of it counting bars – and conquering the fear of coming in at just the wrong moment! It has some similarities with appearing before a court or tribunal.