I have client who was involved in an offshore disguised remuneration scheme. Prior to the set up of the umbrella company/EBT the client was paid directly from the overseas employer. The funds were paid into an offshore account. The client was UK resident for that year but that income wasn’t declared in the UK.
After the set up of the EBT loans were taken on a monthly basis. In one such month funds were also re-directed from the offshore account back through the EBT. This was then paid to him in the UK after the deduction of the scheme fees. Our client was advised at the time that this was a legitimate way of getting the funds back into the UK tax free.
Our client now wants to settle with HMRC.
I am not sure how we deal with the funds paid back into the trust. The loans are taxable as earnings as per recent legislation. The earnings prior to the EBT set up I believe are just foreign employment earnings which haven’t been declared. If our client is taxed on the overseas earnings and all of the amount paid back through the EBT then the same income has effectively been taxed twice.
Any ideas?
Many thanks
Related resources
Replies (5)
Please login or register to join the discussion.
Logically the pre-EBT earnings should just be taxed on the basis of UK residency. These earnings that were subsequently paid into the EBT look like they were effectively a loan (to the EBT) which means that they wouldn't be taxed again when extracted. In other words not all the "loans" from the EBT would be taxable as income, only those earnings which hadn't been taxed before.
What's the timeline?
Has all of the pre-EBT income now been routed back to the individual?
What sort of numbers are involved?
In any event, the settlement with HMRC should be just that - a negotiated deal taking into account all relevant factors. However it ends up being taxed, I'd expect a fairly stiff penalty for non-declaration of earnings.
pre EBT income may have come back or is still sat in offshore account (to be confirmed).....but I dont think overly relevant, this is taxable overseas earnings, the client was wrongly advised that he could route this through the EBT and receive tax free. UK residency wasnt broken so taxed on worldwide income irrespective of where income goes
Numbers are fairly substantial for average person on the street, but just about affordable for my client
I would be interested to hear any views on penalties, some commentaries I have read have suggested they are not being applied, the interest is fairly chunky on its own. There must be a reasonable excuse angle given how the schemes were promoted at the time, to us as advisers we would be cautious of any such scheme but the man on the street being advised by these firms expects that they are legitimate.
Thanks for input
I wasn't commenting on the EBT penalty regime - but if the individual has simply failed to disclose offshore earnings that is not a 'scheme' and I don't see why penalties wouldn't apply.
My query regarding the remittance of pre-EBT income was on the basis that if it has all been paid out then it may be easier to wrap it up in a single settlement. If not, then there are going to be two distinct issues - the non-disclosure of overseas earnings and the EBT itself.
Yes agree on that, I am hoping that they may see it as one disclosure but clearly the client has undeclared income for the first part, it may be more difficult to argue a case for not declaring that, thanks