The Court of Appeal and Remuneration Trusts: Dentists and the Toothache of Tax

Strategic Reflections on Marlborough DP Ltd v HMRC

For many years, remuneration trust arrangements were widely marketed to incorporated professionals, business owners and contractors as tax-efficient structures capable of extracting value from companies in a manner said to reduce income tax and National Insurance exposure. A significant number of healthcare professionals, including dentists and dental practice owners, entered such arrangements following professional advice and during periods in which these structures were actively promoted within professional circles.

Over the last decade, however, HM Revenue and Customs has pursued increasingly sustained litigation concerning disguised remuneration arrangements and the operation of Part 7A of the Income Tax (Earnings and Pensions) Act 2003 (“ITEPA”). The recent decision of the Court of Appeal of England and Wales in Marlborough DP Ltd v HMRC [2025] EWCA Civ 796 represents another important authority within that evolving landscape.

The case is particularly significant because it concerned:

• a dental practice structure;

• offshore remuneration trust arrangements;

• loans advanced via a trust mechanism;

• and the interpretation of the Part 7A requirement that amounts be provided “in connection with” employment.

The Court ultimately dismissed the appeal brought by Marlborough DP Limited and upheld HMRC’s position that the arrangements fell within the disguised remuneration regime.

Background

The appellant company operated a dental practice through its sole director and shareholder, Dr Thomas. The arrangements involved the use of an offshore remuneration trust structure through which loans were made available.

The essential dispute concerned whether those loans constituted “relevant steps” within Part 7A ITEPA and, in particular, whether the benefits provided were made:

“in connection with” employment.

That question has become one of the central doctrinal issues within disguised remuneration litigation more broadly.

The Legal Framework — Part 7A ITEPA

Part 7A ITEPA was introduced to counter arrangements designed to provide rewards or recognition connected with employment through third parties in forms intended to avoid immediate taxation.

Broadly speaking, the regime seeks to impose income tax charges where:

• third-party arrangements;

• trusts;

• loans;

• earmarking;

• or similar mechanisms

are used to provide benefits connected with employment.

The statutory language is deliberately broad. A central issue in many disputes has therefore become the scope of the phrase:

“in connection with” employment.

Taxpayers have frequently argued for narrower constructions requiring close causative linkage between employment and the relevant benefit. HMRC, by contrast, has consistently argued for a broader evaluative approach directed toward the overall commercial reality of the arrangements.

The Court of Appeal’s Reasoning

The Court of Appeal upheld HMRC’s position and dismissed the taxpayer’s appeal.

Importantly, the Court rejected a narrow causation-based interpretation of the phrase:

“in connection with” employment.

Instead, the Court adopted a broader and more realistic evaluative approach to the arrangements as a whole. The Court concluded that the loans made through the remuneration trust structure possessed the necessary employment connection required by Part 7A.

The decision is significant because it reinforces the increasingly purposive judicial approach that has emerged across disguised remuneration litigation generally. Courts have repeatedly demonstrated a willingness to examine:

• the substantive commercial reality of arrangements;
  rather than:

• merely their formal legal structure.

The Court’s reasoning therefore continues a broader judicial trend in which arrangements designed to extract value through offshore trusts, loans or intermediary mechanisms are analysed in light of their practical function and economic substance.

Why The Decision Matters

The practical significance of Marlborough DP Ltd extends beyond the immediate facts of the appeal.

First, the case represents another substantial litigation success for HMRC in the disguised remuneration arena. For taxpayers and advisers dealing with historic remuneration trust structures, the broader litigation landscape has become materially more challenging over time.

Secondly, the factual context is particularly important. The case concerned a dental practice and therefore directly reflects the types of professional structures historically used by many incorporated healthcare professionals and practice owners.

Thirdly, the decision reinforces the importance of strategic reassessment. In many cases, taxpayers entered these arrangements:

• years earlier;

• on the basis of professional advice;

• and during periods in which such structures were widely marketed within particular sectors.

The strategic landscape has since evolved significantly through:

• litigation developments;

• statutory changes;

• settlement initiatives;

• and HMRC enforcement activity.

Important Nuance — Not Every Case Is Identical

Whilst the broader litigation trend has increasingly favoured HMRC, it is important to recognise that remuneration trust disputes frequently involve highly fact-sensitive and procedurally complex issues.

Different cases may involve:

• differing trust structures;

• differing factual matrices;

• penalties;

• discovery assessments;

• closure notices;

• procedural fairness issues;

• or questions concerning limitation and HMRC process.

Similarly, settlement strategy, litigation risk and evidential issues frequently require careful individual analysis.

For that reason, the existence of adverse authorities does not eliminate the need for careful strategic consideration of individual circumstances and procedural position.

Strategic Reflections

Experience increasingly suggests that remuneration trust disputes are rarely resolved purely through technical doctrinal analysis alone. In many cases, careful strategic coordination between:

• counsel;

• accountants;

• and other professional advisers

is important in evaluating:

• settlement opportunities;

• penalty exposure;

• procedural position;

• and longer-term litigation risk.

For many affected professionals, particularly dentists and healthcare practitioners, the underlying commercial objective is often not continued confrontation but:

closure, certainty and peace of mind.

That objective frequently requires a realistic and carefully managed reassessment of both legal position and practical strategy in light of the modern litigation landscape.

Conclusion

Marlborough DP Ltd v HMRC represents another important authority within the evolving disguised remuneration and remuneration trust landscape. The decision reinforces the increasingly broad judicial approach to the Part 7A requirement that benefits be provided:

“in connection with” employment.

For taxpayers and advisers dealing with historic remuneration trust arrangements, the case also illustrates the importance of careful strategic reassessment in circumstances where:

• HMRC litigation success has increased materially;

• settlement considerations remain active;

• and penalties, procedural issues and long-term dispute strategy continue to require detailed consideration.

Michael Paulin has acted for several dentists and dental practices, and on their behalf settled and/or resolved high-value settlement cases. Contact michael.paulin@1cor.com for an informal confidential discussion.