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Remuneration Trust

My client is a model and a new contract that she has been offered includes mention of a plan to receive all her earnings free of tax. The plan is called the Bluetax plan and is offered through a company called Baxendale Walker LLP. It is described as a type of remuneration trust.

Their examples in the contract suggests that notional paye and ni is calculated on the performers earnings. This amount is then paid to the plan as a fee. The performer then receives 50% of this fee back from the plan. It has to be paid to a separate bank account but the perfomer is then free to spend this money as they wish. The information states that the performer pays no actual tax or national insurance whatever their earnings.

My client has asked if she should sign up to this?

Can anyone advise me on this scheme? Is it legal? Are there any catches? If my client uses this scheme is she still self employed? Can she claim any expenses? Does she still need an accountant?

Thanks for any advice

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Structured tax avoidance schemes

This is a tax avoidance scheme and as such should fall under the DOTAS regime.

These schemes are structured to be legal, but you won't know if they actually work until several years down the line if they are challenged by HM Revenue (and most will be).

Your client will receive a tax enquiry. That enquiry will focus on the DOTAS scheme only. Whether HMRC actually look into her case will depend on whether she's among the sample looked at for that particular scheme.

There will be ongoing costs in the scheme, specifically trustee fees and potentially either interest charges on the loan she'll draw from the trust (hence there's no income tax or NIC - maybe) or a benefit in kind charge.

My view is that you should only promote DOTAS products if you are confident that you understand ALL of the risks and consequences for your client. Unfortunately if you're not acting through a network group like 2020 or AVN, this means that you'll have to do all the due diligence yourself to make sure you're happy with advising your client.

For more look here:

Link!

 

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06th Aug 2010 13:51

Some information about the provider...

http://www.lawgazette.co.uk/news/high-court-backs-sdt-verdicts

 

 

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06th Aug 2010 15:16

Confused

I would echo James Hellyer's comments.

NB: The scheme will be 'just' this side of legal. From the summary you have provided it is evidently what HMRC would call 'abusive'. There will of course be MUCH more to it than we are told above.  Almost by definition there will be plenty of  complex paperwork and there will inevitably be plenty of attention from HMRC down the line. Those are some of the 'catches'.

If it were that easy to do then everyone would do it and the fees charged by the promoters would be lower. I fell out with the owner of the company in question many years ago so I'm definitely no fan. So far as I can recall he took exception to me advising one of my clients NOT to proceed with a scheme he was promoting directly to them.

As regards your other questions:

If my client uses this scheme is she still self employed? Can she claim any expenses? - Er, your question references PAYE which suggests she's going to become an employee. (Regardless of whether she gets involved with the tax avoidance scheme).

Does she still need an accountant? - She'll need an independent objective person to fight her corner and who understands the tax avoidance scheme. Could be an accountant or a tax adviser.

Maybe she's currently self employed working largely for one employer and they want to move her onto staff but prefer to use this tax avoidance scheme in the hope of limiting the impact of employers' NICs?

You can read further my views on tax avoidance schemes on the TaxBuzz blog.

Mark Lee

Chairman, Tax Advice Network 

 

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it's also worth asking...

.. the following questions of the provider in every case:

1. What are the financial risks for your client?

2. Will the planning will be adequately implemented and does the provider have sufficient resources to do so.

3. Does the provider have the technical and financial resource to fully support the planning?

If satisfactory answers aren't forthcoming, then tell your client to run far and fast! The last thing they could possibly want is to pay to enter a structured tax avoidance scheme and then find, when the enquiry inevitably comes, that the provider has either implemented the scheme incorrectly so it fails, or does not have the financial resources to live up to the usual promise of funding any enquiry to First Tier Tribunal.

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06th Aug 2010 15:51

Thanks to you all

Many thanks to all of you who have replied with useful advice.

 

Mark, whilst looking into this I had already seen your articles on these schemes and found them very helpful.

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06th Aug 2010 15:56

Remuneration Trust

When I started at my firm, a client had already 'gone it alone' and started a Remuneration Trust with BW.

I must admit I was sceptical at first but the backing from BW when HMRC opened an enquiry is first rate.

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20th Sep 2012 18:26

Baxendale Walker Remuneration Trust

hello

 

I noticed your above post in an old discussion re. Remuneration Trusts.

Do you have more information re. the HMRC challenge and outcome details?

 

 

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06th Aug 2010 15:57

Enquiry

I'd  lack to add a comment to James's comment about getting an enquiry focussing on the DOTAS scheme only. The enquiry may not focus only on the scheme. In a previous job, where a scheme was promoted by the partners (against my advice - I might add!!), the enquiries delved much deeper than just the scheme arrangements - on more than one occasion becoming full-blown in-depth enquiries costing £££s in professional fees - which didn't go down well with the clients! Also every client we had that used the scheme had an enquiry - as HMRC need to keep the year open until they have looked fully into the scheme and decided what to do.

HMRC eventually said they would take each case through the courts seperately - not a test case. As there was no test case, the scheme provider wouldn't fund the case. Last thing I heard was that almost all the clients had backed down and accepted HMRC's view - saving no tax/NIC and paying huge professional fees (plus the provider's unrecoverable fee) and creating poor client/accountant relations. Made me very wary about such schemes!

Part of the problem is that, however clearly you explain the risks to the client, most will only listen to the bits they want to hear and blame the accountant if it all goes pear-shaped. Unless you have a very sophisticated, financially astute client with plenty of money who likes/is used to taking risks, I'd steer clear.

Cathy

[email protected]

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That's interesting

I'd not heard of any cases being handled that way under the DOTAS regime.

Occassionally you get local inspectors who get carried away and try and broaden the enquiry, but the usual guidance is to leave it in the hands of the Inspectors handling the relevant  DOTAS number, and they stick to the scheme itself.

With the right clients and the right promoters, I don't have much of an issue with so-called advanced tax planning. But it does take a lot of time to make sure you're happy with how schemes work before you discuss them with clients.

When I discuss such tax planning with clients I always clearly explain the risks (the better promoters concentrate on the risks). With certain types of structured tax planning it could be several years before the outcome is certain. If the outcome is not what was planned there is always a danger that the client will forget that you clearly explained the risks. So I would always get it in writing that the risks had been explained and that anything further is the promoter's responsibility.

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06th Aug 2010 17:20

@ James

It was a DOTAS scheme - scheme number entered and disclosure undertaken exactly as instructed by the scheme provider. I haven't heard of another being dealt with in that way either (maybe other AWeb members have?) but it worked for HMRC. The provider was adamant the scheme would work but, since there was no test case, they didn't have to fund it and the end users didn't want to take the risk of going further and losing. Clever move by HMRC, I thought at the time!

You are absolutely right about getting your risk warnings in writing but that only protects your legal liability - it doesn't remove the unpleasant taste in the client's mouth if it goes down in flames - he may still blame that on you! To be honest, I think some of my previous firm's problems were caused by overzealous accounts partners (not tax partners) offering the scheme to clients who were just too small and unsophisticated.

Thinking about it (it was a while ago!), I seem to recall that HMRC offered a minor compromise - letting the firms keep a very small part of the NIC saving if they agreed HMRC's figures - which was more than outweighed by fees for my firm's clients because of the small amounts involved (as I said - bad choice of clients for the scheme).

I think that the choice of suitable clients if you are offering such schemes is very important. But, of course, if they approach you with one they've found out about or insist they want to be kept abreast of new tax avoidance schemes then you have to advise them accordingly and let them make their own decision or you will lose them anyway.

Cathy

[email protected]

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06th Aug 2010 17:38

Why don't you be honest with your client

The vast majority of these schemes are reliant upon dubious practices and people. Time and again we see these schemes being promoted by 'tax avoidance specialists' pushing the same old rubbish (or variations on a theme) with the same old promises.

Clients are continually warned - but don't take the advice. They all end up being chased by HMRC and even if the client was to win the ultimate tax case, likely the professional fees would outweigh the tax saved. A Pyrrhic victory if ever there was one.

I would advise your client that the only genuine way of saving taxes are those mechanisms approved by HMRC (ISA's, Pension Funds, EVT's, etc.). If your client doesn't like the honest approach then tell them that the only other approach that is relatively low tax is to move to some god forsaken hell hole that where no tax (or lower tax) is liable. Perhaps having some 'real life' pictures of Panama (hot, muggy, filled with low-lifes), Monaco (more expensive than the tax saving), etc. might get your point across.

 

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02nd Aug 2012 08:23

Remuneration Trusts

My information is that these answers are not correct. Contact me for details.

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24th Aug 2012 11:33

Remuneration Trust -DOTAS

An interesting feature of the Remuneration Trust scheme devised by Baxendale-Walker is that it does not have a DOTAS number.

This is because Mr Baxendale-Walkers says it is not a tax avoidance scheme.

Good isn't it?

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By goblinf
28th Sep 2012 19:14

Remuneration Trusts

Not sure why this thread has revived after 2 years?

I am not surprised BW LLPs response to an HMRC enquiry was first rate: any firm promoting aggressive tax schemes has a lot of practice in that area!

Since the original post (and it would be interesting to know what's happened since) there has of course been this: the demise of Rangers relating to Mr BW's EBT

http://www.bbc.co.uk/news/uk-scotland-glasgow-west-18169502

And the outrage over Jimmy Carr's legally valid mitigation scheme (nothing to do with Mr BW as far as I'm aware but I didn't really pay much attention at the time).

http://www.bbc.co.uk/news/magazine-18537051

And didn't CIOT issue some sort of document about tax avoidance/ tax evasion shortly afterwards?

Times are a'changing! 

 

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