Spotlight 56: Tax avoidance by owner managed companies utilising remuneration trusts

• Spotlight 56 highlights disguised remuneration arrangements where a company contributes to an offshore remuneration trust and claims the contribution as a deductible Corporation Tax expense.
  • The director of the company then makes small loans to the trust, or to someone appointed by the trust.
  • It is claimed that the loans are not connected with the director’s employment with the company.
  • As part of the arrangements, a personal management company is set up and controlled by a third party.
  • The third party extracts the scheme fee and the remaining money is transferred to the director of the company. Money received by the director is claimed to be a tax-free loan.
• HMRC may issue a counteraction notice under the General Anti-Abuse Rule (GAAR), without going back to the Panel for a new opinion, if:
  • The individual has utilised this remuneration scheme or a similar arrangement to those considered by the GAAR Panel, and/or
  • The arrangements were entered into on or after 17 July 2013
• Individuals using the scheme may also receive an accelerated payment notice (APN) after receiving a GAAR counteraction notice.
  • This means that individuals will be required to pay the total value of disputed tax upfront while HMRC continues to investigate.
  • There is no right of appeal against an APN, but individuals do have the right to make representations.
• Arrangements entered into on or after 15 September 2016 may be subject to a 60% penalty where the GAAR applies.
• HMRC strongly advises individuals to withdraw from the scheme and settle their tax affairs if:
  • They have been using these arrangements or similar schemes, and/or
  • They have used one in the past
• Those who disclose this information to HMRC will avoid the costs of investigation and litigation and minimise any accumulated interest and penalty charges on the tax that should have been paid to HMRC.
• Penalties apply where any of these arrangements have been enabled and entered on or after 16 November 2017.

See the full Spotlight here.

Aspire Comment

HMRC stand firm that such schemes are contrived purely for the purpose of tax avoidance and will continue to pursue anyone who participates, promotes or enables such schemes. The GAAR Panel are of the opinion that there is reason for the arrangements to be structured in such an artificial and complex way, other than for the individual to seek a tax advantage, and the Panel will continue to work with HMRC to challenge those suspected of using and promoting tax avoidance schemes.

HMRC will issue a penalty based on the principle of carelessness. It is the individual’s responsibility to prove that they acted with reasonable care, in which case, HMRC may review the penalty and amend accordingly.

It is imperative that individuals who have previously utilised such schemes, or continue to do so, report this to HMRC. Deliberately concealing this information from HMRC will result in a high penalty and accumulated interest on the tax liability.

If you require guidance and support in disclosing the use of a disguised remuneration scheme to HMRC, get in touch today by calling 0121 445 6178 or email enquire@aspirepartnership.co.uk.

See Government’s previous Spotlights on disguised remuneration schemes:

• Spotlight 40
• Spotlight 44
• Spotlight 51