Remuneration Trusts - HMRC Settlement Opportunity
Remuneration Trusts - HMRC Settlement Opportunity
HMRC’s work targeting taxpayers who have used marketed tax arrangements is continuing. In July 2022 HMRC closed an ‘opportunity’ for users of certain historic tax avoidance arrangements to agree and settle their liabilities. However, we are aware that HMRC are still willing to enter into settlement discussions, including applying the terms of the now closed settlement “opportunity”.
Background
The arrangements were used to reward directors, shareholders and/or self-employed individuals without paying income tax and National Insurance Contributions (NICs). They were commonly known as “Remuneration Trusts” or “Creditor Protection Trusts”. A corporation tax deduction, in the case of companies, for the contributions made to the scheme was also often claimed.
HMRC maintains its view that anti-avoidance rules apply to such arrangements, making them invalid, and that income tax and NICs fall due. Although, HMRC acknowledges that there are circumstances, based on recent case law, where different tax treatments could apply, for example dividends or company loans.
Settlement
As different variations of the arrangements were available, the settlement terms are complicated and whether they are beneficial, and which one(s) are available or suitable, will depend on the specific facts and circumstances for each taxpayer. There are number of settlement options available and the tax liability under each option will differ.
Some options allow for more flexibility in terms of the amounts due and the timing of when liabilities need to be paid, however, all have strict criteria which must be met to qualify for the settlement terms.
Interest on late payment of tax will be payable where HMRC has protected its legal position (by raising enquiries and assessments).
HMRC also reserves the right to charge penalties, in particular following Royal Assent of Finance (No. 2) Act 2017, if a tax return has been submitted to HMRC which relates to a tax period that began on or after 6 April 2017 and ended after 15 November 2017, or that was sent to HMRC on or after 16 November 2017. Due to the terms of the legislation HMRC will presume the inaccuracy in the return (which relates to the use of a tax avoidance arrangement) was caused by careless behaviour. The penalty will be up to 30% of the additional liabilities.
HMRC is willing to negotiate payment plan terms, but the available terms will depend on the facts and circumstances for each taxpayer.
Recent case law
HMRC is actively litigating remuneration trust cases. For example, in April 2024, the Upper Tribunal released its decision in HMRC v Marlborough DP Limited [2024] UKUT 00098. The Court held that the arrangements came within the disguised remuneration rules, such that income tax and NIC was due on the amounts contributed to the scheme. The Court also held that there was no intention or purpose to benefit the company’s trade in making the contributions and disallowed the corporation tax deduction that the company had claimed.
BDO Analysis
The settlement opportunity announced by HMRC in 2022 was welcomed, as is the continuing availability of reaching settlement with HMRC, but terms for settlement are complicated. Whether settlement is the best option for the taxpayer will very much depend on the particular facts and circumstances.
More recently we have seen HMRC seeking deliberate penalties against users of this planning on the basis that the planning documentation said the money was to be used for a particular purpose, but in reality the money was immediately lent to the individual and therefore could never be used for the purposes as documented. We expect HMRC will more closely consider the behaviours of those who have entered into these arrangements in all cases.
Given the recent Upper Tribunal decision in Marlborough, this may change HMRC’s approach to settlement and the terms that are available to reach settlement with HMRC but what is clear is that HMRC is pursuing what is often now very old tax planning to recover the liabilities it believes is due.
How can we help?
At BDO our Tax Dispute Resolution team has significant experience of helping clients resolve tax issues on Remuneration Trusts and HMRC’s approach to settling tax avoidance arrangements. For a no obligation discussion on your options, please get in touch with Jon Claypole or Richard Philson.