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HMRC internal manual

Employment Income Manual

PAYE avoidance: pre-existing entitlement to a monetary amount: Paul Dunstall Organisation Ltd v Hedges

In June 1988 the Paul Dunstall Organisation Ltd awarded a bonus of £800,000 to Mr Dunstall, who was a director of the company, on condition that it be paid in the form of land. The land was transferred to the director who sold it to a third party. The minute of the meeting at which the bonus was awarded read:

“It was resolved that a bonus of £800,000 be paid to Mr Dunstall…on condition that the bonus be paid and accepted in the form of (and in no other form than) land transferred from the company to Mr Dunstall”.


The company contended that:

  • a payment for PAYE (Section 203(1) ICTA 1988 – now Section 684 ITEPA 2003) means a payment in money (i.e. cash or something akin to it), Mr Dunstall received land not money and so there was no payment
  • the reference to £800,000 in the minute was only to quantify the land concerned in the bonus (the total value of the land transferred was £1.48 million, Mr Dunstall purchased the balance worth £680,000 from the company)
  • the company had no intention, nor the resources, to pay £800,000 in money
  • the land transfer represented an emolument chargeable to tax as employment income , but not subject to PAYE.

The Inland Revenue argued that:

  • a payment for PAYE is not limited to a payment in money but includes a payment quantified in money
  • the principle in WT Ramsay Ltd v CIR (54TC101) applied to the land transfer.

Special Commissioners’ Decision

The Commissioners held that the term payment in Section 203(1) ICTA 1988 (now Section 684 ITEPA 2003) is not restricted to payments of money but rather had a much wider meaning that could apply to all emoluments that can be turned into money. Therefore the transfer of land was a payment of income, which should have been subject to PAYE.

The Commissioners also expressed the view that, on Ramsay grounds, the transfer of land was a payment of money on which PAYE should have been operated.

The Commissioners’ decision has only limited precedent value. It is the only Special Commissioners decision on a PAYE avoidance scheme prior to the introduction of specific anti- avoidance legislation. Whilst it supports the Inland Revenue’s view that payment has a wider meaning than simply payment of money and therefore an asset transfer to satisfy a pre-existing entitlement to a monetary amount does not prevent the payment being subject to PAYE (see EIM12002), the decision went much further. However, the Inland Revenue has no plans to adopt this approach.