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Aspect share scheme trust struck down

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10th Sep 2012
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A close company’s “facility” to enable employees to acquire shares in the company is a loan and subject to corporation tax, a tribunal ruled.

In Aspect Capital Ltd v HMRC [2012] UKFTT 430 (TC) employees of the investment management firm Aspect Capital received shares via an employee benefit trust (EBT) that meant they did not have to pay for them immediately.

Aspect then paid the facility amount to the EBT trustee, less the stamp duty due, and the trustee transferred legal title to the shares to the relevant employee.

The facility agreement provided that no debt was created unless and until a contingency event occurred such as the employee leaving the company, law firm Pinsent Masons said in an analysis of the highly technical case.

Aspect argued that the purpose of the scheme was to enable employees to acquire shares in the company on particular terms.

The tribunal ruled that the sale of the shares to employees on terms that they could pay for them later did not amount to an advance under the terms of the Section 419 anti-avoidance tax rule. Since the EBT arrangement was effectively a loan, it would be subject to the 25% corporation tax charge set out in s419 for loans made to participators in a close company, until the loan is repaid.

The tribunal also ruled that the meaning of “debt” is wider than that of “loan” and that therefore a debt must have been created.

“The Company had paid out money under the facility agreement. This was not a gift so unless and until liability to repay it was waived and it became a gift, the employee owed it to the company,” tribunal judge Barbara Mosedale wrote.

Replies (9)

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By GuestXXX
17th Mar 2015 15:39

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Replying to Constantly Confused:
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By ThornyIssues
12th Sep 2012 07:44

One would hope ....

secondhand_22 wrote:

Another "clever" scheme bites the dust

Except none of these schemes/specious interpretations of law applied by these "specialist" tax planners are clever at all.  The flyers they post to me can say they have a barrister's opinion all they like - they aren't getting through the door of my practice, let alone anywhere near my clients!

... that said barrister's PII is hit very hard. Secondly, I would hope that the company's accountant's PII is hit very hard too, assuming they were party to the arrangement.

 

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By justsotax
12th Sep 2012 11:23

Perhaps we could

also be made aware of the accountants promoting/selling these schemes...

 

Given the other article re 'trustworthy' accountants....i just wonder who out of the big 4 offer this type of scheme to their clients....

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By thomas34
13th Sep 2012 12:19

Advisers

We don't know who the advisers were but Ernst & Young trousered large sums of money for both audit and non-audit services.

I guess the decision is subject to appeal but either way this does not appear to be a scheme per se but about interpretation of the law.

These are the sort of people that look down at those who choose to practice without joining their club.

I for one hope that HMRC achieve many more victories against these rackets.

 

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Replying to Ruddles:
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By ThornyIssues
13th Sep 2012 12:37

Rackets? A tad too harsh.

thomas34 wrote:

We don't know who the advisers were but Ernst & Young trousered large sums of money for both audit and non-audit services.

I guess the decision is subject to appeal but either way this does not appear to be a scheme per se but about interpretation of the law.

These are the sort of people that look down at those who choose to practice without joining their club.

I for one hope that HMRC achieve many more victories against these rackets.

 

To paraphrase one reply from HRMC in the GAAR consultations :- 

"We reject any attempt to tighten the scope of GAAR because it has been a long standing principle to pen laws which give HMRC as much scope to interpret said laws as we see fit"

Now that is wrong and while some schemes are/were very aggressive, they used loopholes in these vague and woolly laws which HMRC generally refuse to close. HMRC thus relying on being able to convice a judge that those who navigated a path through the loopholes, actually went against the spirit of the law. Costs being bourne by the deep pockets of the taxpayer, when they (frequently) lose.

Secondly, while I am quite happy for HMG/HMRC to tighten the laws, they should not be able to tackle one single loophole in isolation. Nor should they be free to apply retrospection.

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By justsotax
13th Sep 2012 12:47

not a scheme but an interpretation of the

law.....I suspect what you will find is that the provider finds an 'interpretation of the law' that provides a tax benefit and then sells it to its clients (in a package, that they must disclose as a scheme).

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By declan12
17th Sep 2012 12:45

simple solution?

At the moment these packaged schemes have to be reported to hmrc with sanctions for non compliance. If we can agree some guiding principles as to what constitutes unacceptable surely it is reasonable for hmrc to have a deadline for deciding in each case whether it is aggressive or already unlawful or neither.  If it is considered to be unacceptable or illegal then the provider would be told that if they market the scheme retrospective changes will be made if necessary to outlaw it. If it is regarded as acceptable planning the scheme could be given a form of clearance  which would not exclude the possibility of future legal changes but would prohibit legal challenge based on current law and retrospective change. Simple?

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7om
By Tom 7000
17th Sep 2012 13:29

barristers opinion

They say, ''our opinion is at the utting edge of law and consequently it is given on the basis that we accept no liability etc etc '' so they arent taking the blame...far too clever for that.

 

Im with 2ndhand 22 above ..at the end of the day when it goes pear shaped the clients will blame you.....regardless of scheme organiser

 

 

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By GuestXXX
17th Mar 2015 15:40

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