Scottish court closes tax avoidance scheme

The Scottish Court of Session has closed an offshore tax avoidance scheme used by FTSE 100 company Aberdeen Asset Management to pay its employees tax-free bonuses. 

The company paid senior employees and directors over £31m free of income tax and NICs between 2000 and 2003 using an employee benefit trust (EBT), HMRC said.

The highest Scottish court backed HMRC's argument that...

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Comments

Interest but no penalties?

the_Poacher | | Permalink

No doubt there'll be no penalty charges, just interest at a very attractive rate. Frankly, Why wouldn't you try one of these schemes?

ShirleyM's picture

The promoters fees will be high

ShirleyM | | Permalink

At a guess, 10% of £31m, maybe more, and will be lost forever unless the company makes a claim against them.

Employee Benefit Trust (EBT) Schemes

jdixon2614 | | Permalink

I notice from the article that this particular EBT scheme was used to pay employees between 2000 and 2003, at which point it was outlawed.

So does this mean that PAYE and NICs are due on payments made during that period, or on payments made after that period?

 

John

www.MyBookkeepingManager
 

£31m tax free payment, £7m tax and NI

hiu612 | | Permalink

Not quite sure how those figures stack up. 22.5% tax, Ees NI and Ers NI hardly seems worth avoiding, especially when CT rates were up at 30 odd percent.

£31m tax free payment, £7m tax and NI

hiu612 | | Permalink

Not quite sure how those figures stack up. 22.5% tax, Ees NI and Ers NI hardly seems worth avoiding, especially when CT rates were up at 30 odd percent.

Wrong conclusion

Paulsoper | | Permalink

The Court has NOT closed an avoidance scheme - that happened at a much earlier stage in the hearing of the case when it went to the First Tier Tribunal - no appeal was being made by the bank on that point.  The bank accepted the basic premise of the scheme failed and that the amounts transferred to the employees through the device of an offshore EBT and "money box" companies used to artificially dilute the value of the bonus payments were correctly assessable within (as it then was) Schedule E.

The subject of this appeal (by both the bank and HMRC) is concerned with the very important point as to whether the PAYE system should apply and the bank be liable to account for the tax and NIC that was not avoided or whether each individual employee/director who benefited from the scheme should be individually liable.  The Court held that the sums concerned were within the ambit of the PAYE system and so, dismissing the appeal of the bank, but allowing the appeal of HMRC, it s the bank who is liable.

Whether the figures stack up or not is not really an issue, but who is liable is of enormous significance to the success or othgerwise of the schemes.  The banks will have to pay up, surely good news for the individual employees, most of whom no longer work for the banks in question, so preventing the bank making a corresponding deduction under the PAYE system.  Probably if no longer employed by the bank the bank would not be able to bring an action against each individual employee as a result of the statute of limitations but that would also depend on the interpretation of the principle of legal mistake.  However for smaller proprietor owned businesses who used these devices as a "tax efficient" means of profit extraction it may lead to demands against these companies which they may be unable to meet.

@smaller proprietor owned businesses

pauljohnston | | Permalink

I suspect that many will have already been wound up and trade under a different name.

That is an interesting one

The Black Knight | | Permalink

the_Poacher wrote:
No doubt there'll be no penalty charges, just interest at a very attractive rate. Frankly, Why wouldn't you try one of these schemes?

 

That is an interesting one.

If i was HMRC I would be arguing that you were careless in the advice you sought,

That the scheme did not constitute advice but a product.

Was the correct accounting treatment followed? UK GAAP or IFRS

If I was the client of the accountant who recommended the scheme I would be asking why the commission was not disclosed to me and accounted to me, as clearly against professional rules. If the fee was for advice (independence) as it should have been then presumably the accountant can be sued?

of course as mentioned above the purpose of these schemes is the low interest loan, if the scheme accidentally works then that is a bonus.

AND if you have a reasonable suspicion or out to have had that the scheme did not work then when does that become evasion (or at least a deliberate penalty).