Tax Avoidance – HMRC expresses its views on another disguised remuneration scheme
10 September 2020
On 1 September 2020, HMRC released Spotlights 56 – its opinion on a particular tax avoidance scheme using remuneration trusts. In summary, the scheme in point provides for a company to contribute to an offshore remuneration trust and claim a corporation tax deduction. The trust deed may have various beneficiaries such as:
- third parties that have a commercial relationship with the company making the contributions
- providers of finance to the trust
- someone appointed to act for the trust
The director of the contributing company makes very small loans to the trust, or to someone appointed by the trust. The contributions received by the trust are not used to provide benefits to anyone other than the director of the contributing company through loans made to them on uncommercial terms.
It is claimed that the loans are not connected with the director’s employment with the company. Instead the director may claim they receive the loans because, as a provider of finance, they qualify as a beneficiary of the trust. As part of the arrangements a personal management company is set up and controlled by a third party supporting the arrangements or in some cases controlled by the contributing company or its director. The third party extracts the scheme fee, then transfers the remaining money to the director of the contributing company. Money received by the director is claimed to be a tax-free loan.
HMRC has previously, via earlier Spotlights, indicated it would look to apply the General Anti-Avoidance Rule (GAAR) to disguised remuneration planning. It has formed the view these particular arrangements warrant doing so and the GAAR panel has agreed concluding “‘In our view, the arrangements as a whole are contrived and abnormal and appear to us to serve no purpose other than to avoid tax.’ and ‘There has been a naked attempt to break the connection between the loans to the individual and their activities as a director of the company which have generated the economic value.’
This Spotlight would appear to be targeted at tax planning marketed by a particular Promoter and HMRC is promising to investigate all the users of such schemes entered into on or after 17 July 2013. It has reminded participants receiving a GAAR notice are likely to face an Accelerated Payment Notice requiring payment of the tax to HMRC and penalties of up to 60% in certain circumstances. It also reminds them of the loan charge and “strongly advises” participants to settle their tax affairs with HMRC.
This Spotlights is another example of HMRC’s continued attack at tax avoidance which includes, where it feels it is appropriate, criminal proceedings as demonstrated in the case of R(Ashbolt & Arundell) v HMRC & Anor  EWHC. This case is challenging(unsuccessfully) the warrants issued in a case involving criminal proceedings by HMRC against participants of a disguised remuneration scheme very similar in features to the arrangements covered by Spotlights 56.
Specialist advice should by sought by participants of disguised remuneration schemes covered by this Spotlights as the issues in point are complex.
Sign up for our upcoming Tax Avoidance Update webinar to find out more.