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HMRC cracks down on disguised remuneration

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1st Sep 2011
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Paying employees through loans and trusts to avoid tax will be forbidden in most cases under new draft guidance on disguised remuneration provisions published by HMRC, reports Nick Huber.

HMRC’s campaign against disguised remuneration is designed to prevent employers, in particular City firms or football clubs, from disguising large payments to employees through loans and trusts – employment benefit trusts (EBTs) – in order to avoid or defer income tax or national insurance contributions.

A new schedule in the Finance (No. 3) Bill 2011 will treat loans, money or other assets held in trust but linked to an individual as PAYE income. HMRC also plans to bring forward a similar treatment for NICs. The regime came into effect on 6 April 2011, but will apply in some cases dating back to 9 December 2010.

Draft legislation on disguised remuneration published by the government in December 2010 was criticised for being complex and too broad. Tax experts warned that the anti-avoidance law would catch many remuneration structures that were not designed to avoid tax.

The new disguised remuneration provisions only apply to schemes that use a third party such as a trust, individual or company.

The disguised remuneration guidance, which is due to be finalised in the autumn, attempts to clarify how the law will work in a number of situations including:

  • Clarification that employee car ownership schemes wholly run by the employer or other companies in the same group will not be covered by the disguised remuneration arrangements
  • Normal dividend payments following a share transaction will not be caught by the new rules

HMRC plans to publish final guidance as part of the Employment Income Manual in the autumn.

Philip Fisher, head of employment tax and rewards at PKF said the 208-page guidance will effectively kill off most EBTs as a type of tax planning.

“Ten years ago EBTs were extremely common but now using EBT for any kind of tax efficiency is unlikely to work in all but some very limited cases.”

The ICAEW is considering its response to the guidance, but in a comment on the institute’s site, tax writer Rebecca Verkade-Cave said HMRC’s new guidance is still too complicated.

“Tax advisers will find it almost impossible to advise whether specific transactions are caught by the rules or not,” she wrote. “In such cases surely the best policy for advisers would be to seek a non-statutory business clearance from HMRC for every uncertain transaction.”

Tax advisers who are unsure whether a clients’ remuneration scheme is prohibited by new legislation, can seek advice from HMRC’s ‘non-statutory business clearance’ manual, Verkade-Cave said.

Any comments or questions about the draft regulations should be submitted to HMRC's Employment Income Policy Team by Friday 23 September.

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Replies (19)

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By whiteandco
01st Sep 2011 12:58

Dividends on Uninvested Shares

Funnily enough, just this morning I've been asked the tax treatment on a dividend payment on uninvested shares by an American company to UK employees.  Search as I may, I cannot find a definitive answer.  Can anyone help, please.

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By User deleted
01st Sep 2011 23:32

Ho ho ho ...

“Tax advisers will find it almost impossible to advise whether specific transactions are caught by the rules or not,” she wrote. “In such cases surely the best policy for advisers would be to seek a non-statutory business clearance from HMRC for every uncertain transaction.” 

I see a log-jam coming :o)

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Replying to stevepipehome:
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By ThornyIssues
02nd Sep 2011 12:17

Naivety

Old Greying Accountant wrote:

“Tax advisers will find it almost impossible to advise whether specific transactions are caught by the rules or not,” she wrote. “In such cases surely the best policy for advisers would be to seek a non-statutory business clearance from HMRC for every uncertain transaction.” 

I see a log-jam coming :o)

AIUI, HMRC will never give binding business clearance. They may issue a "scheme number" or give a fettered "ok, but we may come back and change our minds in the future". As we've seen with BN66, that is worthless and at a whim, HMRC can deem the scheme as evasion and act retrospectively.

 

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By MarionMorrison
04th Sep 2011 08:01

So just to clarify

The Revenue are producing guidance and legislation that means people engaged in artificial and manipulative tax avoidance schemes aren't sure whether or not they'll continue to get away with it.  

Go them!

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Replying to Adrian Pearson:
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By pauljohnston
05th Sep 2011 12:03

Marion

It is not what the HMRC are trying to stop that is causing the problems.  Some schemes that are set up with the Government's blessing are caught thus causing real problems for tax advisers.  Also the complexity provides no flexibility for new structures which have nothing to do with tax avoidance.

I dont know what percentage of the tax take is effected by these schemes but I do wonder if the amount of cost and effort would yield more in other areas.

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By ringi
05th Sep 2011 12:37

Ian Ringrose

Over the years I have had many companies contact me trying to sell this sort of scheme, they are promoted in the IT contractor world as a way to avoid IR35 and pay even less tax.   

Why has it taken HMRC well over 10 years before they tried to do anything about them?

Why are the new regulations not being backdated, as it was clear to anyone that joined such a scheme that they were using the law in a complex way the government did not intent to unfairly avoid paying tax.

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Replying to John Stokdyk:
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By abelljms
05th Sep 2011 13:37

ungrateful...?

 

 

I agree these complex rules are going to persecute those who indulge in complex tax evasion - yep evasion - it's not avoidance using EBT, and dubious overseas scams- why [***] around?

 

I keep telling my IT clients to be grateful for the lowness of their tax bills just using conventional uk tax relief. I always say keep it simples, and you can sleep at night without wondering if the House Of Lords decision in Zebedee vs. Actinsaw will remove their last 6 years £0 tax bills.... etc....

 

However it is a tragedy if we all get lumbered with loads of mumbo-jumbo forms due to the selfish minority who evade £loads. 

However a la the ducks, if it looks like a salary, the employee thinks it's a salary and it pays like a salary, it IS a salary.

 

 

 

 

 

 

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Replying to John Stokdyk:
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By ThornyIssues
10th Sep 2011 09:38

Wrong! (sound of Family Fortune's buzzer)

ringi wrote:

Over the years I have had many companies contact me trying to sell this sort of scheme, they are promoted in the IT contractor world as a way to avoid IR35 and pay even less tax.   

Why has it taken HMRC well over 10 years before they tried to do anything about them?

Why are the new regulations not being backdated, as it was clear to anyone that joined such a scheme that they were using the law in a complex way the government did not intent to unfairly avoid paying tax.

Let us not forget that tax avoidance is legal, no matter how it is achieved. It is totally wrong that HMRC can create woolly legislation that enables them to "deem" tax status based on employment law. Further more, they can deem said legal avoidance scheme(s), which use the self same woollyness as now "not in the spirit of the law" and then attempt to apply rectification laws retrospectively.

Simplify tax law, dissasscociate tax and employment law and bin woolly legislation. 

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By sdphilpott
05th Sep 2011 12:29

The end of EBT's or not?

I have seen several tax boutiques still claiming they have tax avoidance mechanisms using EBT's that will get round this new legislation. However I am advising any of my clients to look at alternatives not using trusts as I think HMRC will continue to crack down on trust related strategies now that they really have the bit between their teeth.

Other options are available and have the added benefit of no ongoing trust fees.

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By Owain_Glyndwr
05th Sep 2011 17:53

ringi"Why are the new regulations not being backdated, as it was clear to anyone that joined such a scheme that they were using the law in a complex way the government did not intent to unfairly avoid paying tax" ""

 

 

Very simple, in my view absolutely rightly, Article 7 Human Rights Act - "No one shall be held guilty of any criminal offence on account of any act or omission which did not constitute a criminal offence under national or international law at the time when it was committed. Nor shall a heavier penalty be imposed than the one that was applicable at the time the criminal offence was committed".

 

In other words, retrospective legislation is totally illegal. If it was considered legal when it was done then it was legal and no government or change in the law can change that fact.

 

 

 

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Replying to Vaughan Blake:
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By ThornyIssues
10th Sep 2011 09:24

Human Rights and Tax Laws

Owain_Glyndwr wrote:

ringi"Why are the new regulations not being backdated, as it was clear to anyone that joined such a scheme that they were using the law in a complex way the government did not intent to unfairly avoid paying tax" ""

 

 

Very simple, in my view absolutely rightly, Article 7 Human Rights Act - "No one shall be held guilty of any criminal offence on account of any act or omission which did not constitute a criminal offence under national or international law at the time when it was committed. Nor shall a heavier penalty be imposed than the one that was applicable at the time the criminal offence was committed".

 

In other words, retrospective legislation is totally illegal. If it was considered legal when it was done then it was legal and no government or change in the law can change that fact.

 

 

 

Unfortunately, an EU member state's tax laws are not governed by the HRA as the BN66 challange has shown.

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By philfromleeds
05th Sep 2011 19:40

If it looks odd its remuneration

 

This should be the rule. There are too many loopholes in the guise of trusts.

Just ban them all. We complain that the tax system is too complicated and now have an office of tax simplification. Its aslo the fault of sharp tax advisors we are in this mess.

 

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By pauljohnston
06th Sep 2011 14:21

Disguised Renumeration

Is this about Civil Servants using their business credit cards for non-business expenses?  Or MPs?

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By pauljohnston
09th Sep 2011 09:47

abeljms

For contractors using IR35 avoiding contracts how do you deal with the Dragonfly ruling?

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By pauljohnston
10th Sep 2011 10:16

even simpler

Reduce Tax Rates and avoidance becomes a non-starter.  Not what politicians want because they like complex solutions - I suspect it makes them feel good.

 

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By User deleted
11th Sep 2011 00:07

It is coming ...

... when NI and tax are merged, IR35 will be less of an issue (if an issue at all then).

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By Gazbusa
03rd Nov 2011 18:59

Managed Trusts

 

I have been working in the Oil and Gas Industry for over 25 years which means I have spent more than half that time out of the country, the last 12 years have been International! Why shouldn't I get some kind of tax relief for not being here all the time like residents in the UK! I have been considering using this trust and know of others who have been successfully using it for many years! Because its an International loan Is It Legitimate! I don't fancy paying my wages into this trust from an International agency, to find the tax man is going to take his 50% which is totally ridiculous. Why should I be giving someone a work free life with a nice little income and be home 24/7 while I have to miss my children's birthdays, xmas & new year... This is the Info on the trust, please comment and advise where I would stand should i take part in it......The Trust has been formed to act as a legitimate tax avoidance scheme and is based on a Remuneration Trust which has been operated for 15 years and has never been challenged by the UK Inland Revenue.

 

All your earnings are paid into a Managed Service Trust, who in turn pays you a salary of £500 pm.

 

The rest of your money is invested in a bank deposit account.

 

An offshore company lends you the balance of your salary.  The loan will be non-interest bearing.  Once a year the loan is repaid and we restart the process.

 

The most important details are contained within the wording of the trust.  This was compiled by a CBE QC and is retained by the trust as an adviser.

 

A very similar scheme called a Remuneration Trust (RT) has been in existence for 15 years without being challenged by the Inland Revenue. 

 

It does not matter where the work is carried out and also, anyone can join or leave the trust at any time.

 

Our Barrister, xxxxx QC, supervises the trust and does a 6 monthly review to ensure it complies with current legislation.  The total fees involved are 12% which is deducted from all monies which go through the trust.  You can be part of the trust all the time or only part of a year.  Say you are working in Denmark and paying Hydrocarbon taxes then you do not need to use the trust as you exempt from UK taxes if you pay Danish tax.

 

The net amount you receive is free of all taxes and national insurance contributions.

 

If you wish to proceed with joining the trust, we will require the following information from you:-

 

name of Employeryour job titleyour employee numberdate of birthhome address and contact phone numbersmarital statusname of partner and date of marriage, if applicablenational insurance numberunique tax reference number (10 digit number, only issued if you are within the Self-Assessment system)your local tax officea copy of your current cvyour bank details, including name and address of bank, account number, name of account holder, sort code, IBAN and SWIFT/BIC codeswhether your bank account is a sterling or dollar accountwhether you are paid in sterling or dollars

 

For your employers information our bank account details are as follows.  Please can you ask them to use your name as a reference when making payment into our bank account or alternatively to confirm to us what payment reference they will be using.  This will ensure that your salary is processed correctly and swiftly.

 

Appreciate any comments/Advice.

 

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By Tax Networks
28th Aug 2013 15:38

I believe you need urgent advice in relation to the above structure and HMRC CoP8/ S.9A investigations.

 

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By ARAFVH
19th Sep 2013 16:05

BMST - HMRC DEADLINE 30 NOVEMBER 2013

 Bridgham Managed Service Trust - promoted by a now-deceased accountant - HMRC have decided it is fatally flawed and have written to hundreds of users.  They all are having their tax return equired into.

HMRC has given them until 30 November 2013 to say if they want to take this opportunity.

As former tax inspectors we are acting for a number of them and have written the following about the scheme http://tinyurl.com/BMST-HMRC

 

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