Profit extraction using a remuneration trust (RT)
My client has asked me about the legitimacy of this. Basically a company in Bath CBN Global is marketing a Remuneration Trust where they appear to say that Limited Companies can pay into, obtain corporation tax relief, and the RT can then distribute the funds to the shareholders tax free. Obviously is sounds too good to be true but I would appreciate it if anyone has come across these if they could let me know their thoughts (or even if they havent come across them)
Here is some of the information on their leaflet
Contractors operating their own limited companies usually have a close trading company which carries on a profitable trade. The company uses the services of a variety of suppliers and has a number of customers.
Remuneration Trusts have been used throughout the last century as a vehicle for providing benefits to executives.
The primary fiscal characteristics of the Remuneration Trust (RT) are that it excludes the provision of ‘relevant’ retirement benefits and that employees of the company are excluded from benefit. This has the consequence that contributions made to the trust by the company are not subject to income tax.
The trust is constituted so that it is a discretionary trust. This assures the company that no one beneficiary can make a claim to trust funds to the prejudice of settlement of the overall commercial liabilities which the trust is designed to fund.
It also does not constitute a retirement benefits scheme. Therefore, contributions to it are not subject to income tax under ‘retirement benefits schemes’ rules.
Such contributions are not subject to PAYE, since none of the contribution constitutes assessable income of any employee, or indeed a specific receipt by any person. Similarly, such contributions are not liable to Employers Class 1 NICs, since they are not ‘earnings’ of any person.
Section 143 and Schedule 24 Finance Act 2003, as amended by section 245 FA 2004 specifies that an RT contributor should not obtain a corporation tax deduction for an ‘employee benefit contribution’ until (and to the extent that) distributions are made by the RT. Since the companies present and past employees are specifically to be excluded persons under the trust, these statutory restrictions will not apply. Contributions will become deductible in the accounting period in which they are made.
Part X CA 1985 (Enforcement of fair dealing by directors) has no application to a Remuneration Trust, since any and all benefits which may be received by a director from the trust are exclusively at the trustees’ discretion. This precludes any establishment of a prohibited ‘arrangement’.
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