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SNP’s new auditors linked to school fees tax scheme

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Dan Neidle talks to Rebecca Cave about a tax planning scheme that could leave the AMS Accounting and their tax boutique Signature Group open to a penalty of up to £1m.

22nd May 2023
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AMS Accounting was appointed as auditors of the Scottish National Party (SNP) earlier this month. The Signature Group is a tax advisory company associated with AMS Accounting through a joint venture agreement.

A picture of Dan NeidleUntil The Guardian contacted Signature, it had been promoting a tax planning scheme designed to help business owners avoid tax when paying private school fees. 

However, the promotion of the scheme is more widespread than what was first believed. Tax lawyer Dan Neidle reported this weekend that the scheme is being sold by muiltiple advisory firms.

I caught up with Neidle to find out how the scheme works. 

Q&A with Dan Neidle on school fees scheme

What does the scheme aim to do?

Dan Neidle: In essence it diverts dividend income from a company owned and managed by the parents into a trust for their children, which then pays the school fees for those children.

Surely the parents would be taxed on this income if they directly paid dividends into a trust for their children?

Dan Neidle: Yes they would, which is why an additional relative or friend of the parents is required to be involved. Let’s call this friend/relative Uncle Tom.

How does Uncle Tom receive the income which is used to pay the school fees?   

Dan Neidle: Uncle Tom subscribes for B shares in the parent’s company for say £1,000, which have a right to receive a special dividend. He then declares a trust of those shares in favour of the children, and that dividend income is treated as belonging to the children.

How does this shifting of income save any tax?

Dan Neidle: The scheme relies on the parents being higher or additional rate taxpayers, who have already used their dividend and personal allowances. The children will be basic rate taxpayers who can also set their full personal allowance and dividend allowance against the dividend income.

The parents clearly benefit from these arrangements so how come they are not taxed on the income of the trust?  

Dan Neidle: HMRC may argue that the parents are settlors of the trust as they (being directors of the company) permitted the company to issue the B shares to Uncle Tom. Also, the trust was established for the benefit of their minor children, so the settlors have an interest in the trust.

Under the settlor interested trust rules the trust income is taxed on the settlors, and this can apply in situations where the trust was made indirectly –  in this case by Uncle Tom acting for the parents.

Have the parents moved some value from the company into the trust?

Dan Neidle: That is also a possibility. Has Uncle Tom paid market value for the B shares? A fair value could be the net present value of the special dividends expected to be paid on the B shares for the life of the trust. A nominal subscription cost of £1,000 is unlikely to equal that net present value, so the shares are supplied at an undervalue. In this case the securities with artificially enhanced value rules may apply.   

Alternatively the value shifting rules may apply where value has been artificially shifted from the parent’s company to Uncle Tom and onward to the children.

If the trust pays a liability (school fees), which arises from a contract between the school and the parents, is there a benefit in kind charge for the parents?

Dan Neidle: The contract to pay the school fees would have to be drawn up between the school and the trustees. The detail of exactly who signed the contract with the school could scupper the scheme.

Where the contract is between the parents and the school, but the company arranges for a third party (the trust) to pay those fees, this could certainly generate a benefit in kind charge for the parents.    

Could the school be in trouble for participating in the scheme?

Dan Neidle: Yes. Any school was foolish enough to facilitate the structure, they could well be an enabling participant, potentially liable for a penalty equal to 100% of the fees received from the structure.

Could HMRC apply the General Anti Abuse Rule (GAAR) in these circumstances?

Dan Neidle: HMRC may well refer this scheme to the GAAR Advisory Panel who decide whether the structures set up “cannot reasonably be regarded as a reasonable course of action”.

What powers do HMRC have to charge penalties to those involved in a scheme like this?

Dan Neidle: Where the GAAR panel judge the scheme to be abusive the scheme fails, and there is a potential 60% penalty on the taxpayers involved.

However, such a scheme would also be disclosable under the Disclosure of Tax Avoidance Scheme (DOTAS) rules for two reasons:

Where the DOTAS rules apply, the tax scheme promoter is required to disclose the existence of the scheme to HMRC, and in return the promoter receives a scheme reference number. The promoter must pass that reference number on to their clients, who then include it on their tax returns.

If the scheme promoter fails to disclose a scheme when it falls under DOTAS, HMRC may impose a penalty of up to £1m. 

What should accountants do if they or their clients are approached by scheme promoters trying to sell similar school fee schemes?

Dan Neidle:  I’m hearing from lots of accountants/advisers who see clients being sold this kind of thing by promoters. Mostly, but not always, they’re able to persuade them to steer clear. The accountants should steer clear and persuade their clients to do the same.

Replies (37)

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By Winnie Wiggleroom
22nd May 2023 08:23

From the Guardian - A Signature Group spokesperson said: “Signature Group is an award-winning mid-market advisory firm. The tax division (Signature Tax) has been recognised as providing excellent service in the sector and boasts an exceptional team of chartered tax advisers, lawyers and chartered accountants.
“Signature Tax has a strict tax compliance and risk policy which refrains from any form of aggressive tax planning that could be deemed ‘disclosable’ to HMRC or construed as a ‘tax avoidance scheme’"

Strange that the exceptional team of chartered tax advisers, lawyers and chartered accountants seem to disagree with our boy Dan. Any logical and sane accountant would of course agree with his advice to avoid it with a very long pole, but we all know that tax is not always logical or sane.

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Replying to Winnie Wiggleroom:
By ireallyshouldknowthisbut
22nd May 2023 09:57

What are the chances they paid a barrister to give a dodgy opinion about the scheme too.

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Replying to ireallyshouldknowthisbut:
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By Justin Bryant
22nd May 2023 10:07

About 100% I reckon.

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By Justin Bryant
22nd May 2023 09:16

DN is starting to sound like RM.

This is all a bit overblown, as parents/companies can do much simpler, cheaper planning per my comment here: https://www.taxpolicy.org.uk/2023/05/06/schoolfees/

Also, like RM, it's a bit hypocritical considering this huge failed SDLT avoidance scheme that DN's old firm advised on: https://www.supremecourt.uk/cases/uksc-2016-0137.html

See also: https://www.accountingweb.co.uk/any-answers/dns-latest-tax-avoidance-ana...

As for a potential £1m DoTAS fine, I believe a +ve counsel opinion re DoTAS can be relied on as a reasonable excuse defence. A GAAR penalty is avoided by the client simply conceding with HMRC (Enablers Penalties can apply to the promotor(s)).

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Replying to Justin Bryant:
By ireallyshouldknowthisbut
22nd May 2023 09:52

So Justin, so lets get this right, you would advise the parents of a Ltd co. they control to pay a fake salary to a child for work they have not done to pay their school fees, and that's all OK?

You having a breakdown or something?

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Replying to ireallyshouldknowthisbut:
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By Justin Bryant
22nd May 2023 09:54

Where do I say "fake salary" or that it's for "work they have not done"? (I think it's you having the breakdown.)

It's pretty dumb not to have the family working for a family owned company and not taking advantage of their personal allowances/pensions etc.

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Replying to Justin Bryant:
By ireallyshouldknowthisbut
22nd May 2023 09:58

so what 6 years old do you know who can be company secretary exactly?

Its clearly a fictitious set up and rubbish advice.

Thanks (7)
Replying to ireallyshouldknowthisbut:
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By Justin Bryant
22nd May 2023 10:01

You're just being silly now (I'm saying no more than the link below), but I would mention that an 8 year old can sign a valid contract under English law.
https://arthurboyd.co.uk/paying-family-members/

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Replying to Justin Bryant:
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By gillybean04
23rd May 2023 10:57

Is it taking advantage of their personal allowances if they are actually doing the work, paid at arms length and actually receive the money? Where is the tax advantage in that "scheme"?

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Replying to Justin Bryant:
By Ruddles
22nd May 2023 09:59

But as Dan points out, your suggestion wouldn't (or rather shouldn't) work. The fact that many family businesses pay non-commercial salaries and get away with it doesn't make it right.

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Replying to Ruddles:
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By Justin Bryant
22nd May 2023 10:00

You'll note that I make that very point. That is surely the bigger story (re "6 year olds" and "fake salaries" etc.). My planning is fine re genuine cases.

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Replying to Justin Bryant:
By Ruddles
22nd May 2023 10:42

Justin Bryant wrote:
My planning is fine re genuine cases.

No sh*t. The point is that trying to find a case where a 6 (or 8) year old is genuinely employed by the company is not the easiest task in the world.

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Replying to Ruddles:
By ireallyshouldknowthisbut
22nd May 2023 10:52

Ruddles wrote:

Justin Bryant wrote: My planning is fine re genuine cases.

No sh*t. The point is that trying to find a case where a 6 (or 8) year old is genuinely employed by the company is not the easiest task in the world.

The only time you will have kids working for the company for nothing is low income families who cant afford paid help and everyone mucks in. In a wealthy family where school fees are even in issue, if the kids are working, they will already be getting paid.

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Replying to ireallyshouldknowthisbut:
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By Justin Bryant
22nd May 2023 11:00

I doubt Signature are flogging this scheme to low paid families is pretty much my point.

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Replying to Ruddles:
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By Justin Bryant
22nd May 2023 10:53

I never said this was OK for a 6 y.o. I said that was just silly (and at that age one would not expect high school fees anyway.) As I said, in theory a precocious 8 y.o. could potentially validly and genuinely work for the company in some way, shape or form (although I have never seen that in practice).

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Replying to Justin Bryant:
By ireallyshouldknowthisbut
22nd May 2023 11:56

Justin Bryant wrote:

I never said this was OK for a 6 y.o. I said that was just silly (and at that age one would not expect high school fees anyway.) As I said, in theory a precocious 8 y.o. could potentially validly and genuinely work for the company in some way, shape or form (although I have never seen that in practice).

So in short "Justin's School Fees Scheme" fails at the first hurdle then? You are also forgetting the minimum age of work is I believe 13 unless you are an actor, and even at 13 there are restrictions to the number of hours you can work in term time and the holidays. Indeed if also attending a private school and have, er homework to do. I wonder how you are going to fit the hours in to work your £25k in fees. They would need to be paid somewhat higher than the £5.28 minimum wage of a 16 y/old. Thats 4,734 hours!

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Replying to ireallyshouldknowthisbut:
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By Winnie Wiggleroom
22nd May 2023 12:07

ireallyshouldknowthisbut wrote:

Justin Bryant wrote:
I wonder how you are going to fit the hours in to work your £25k in fees. They would need to be paid somewhat higher than the £5.28 minimum wage of a 16 y/old. Thats 4,734 hours!

Schoolboy error from Justin?

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Replying to ireallyshouldknowthisbut:
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By Justin Bryant
22nd May 2023 13:13

I never said the planning would cover all school fees (it's good sensible planning regardless) and if it's done over many years it's obviously better.

Or just go to Switzerland for tax deductible school fees: https://www.taxolution.ch/swiss-tax-guide/taxable-income-and-expenses/

I see PNL agrees with me here: https://www.accountingweb.co.uk/any-answers/children-as-shareholders-div...

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Replying to Justin Bryant:
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By Dib
25th May 2023 13:26

Ah yes, PNL, the thread where (s)he suggested buying the school to avoid having to pay said child or a trust for said child and relying on the BiK provisions and the Malvern (?) Schoolmaster's case about marginal cost.

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Replying to Justin Bryant:
By Ruddles
22nd May 2023 12:16

Everyone seems to be overlooking the point that we are talking about school fees. If the child is of school age it is unlikely that they will be in a position to undertake any meaningful paid employment for the company. Apart perhaps from school holidays. But I wonder how many schoolchildren would prefer to work for their dad’s company rather than enjoy time with their mates.

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Replying to Ruddles:
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By Justin Bryant
22nd May 2023 13:14

But at least you would have given them the choice is the point.

Also, everyone is overlooking my main point, which is that the fake salary version of this planning (that one or two idiots here think I'm advocating) is a much bigger story (as it's far more commonplace).

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Replying to Justin Bryant:
By ireallyshouldknowthisbut
22nd May 2023 13:41

Well what are you advocating?

Paying people for the work they have done is not tax planning, its what happens anyway.
Paying people for the work they haven't done is fraud.

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Replying to ireallyshouldknowthisbut:
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By Justin Bryant
22nd May 2023 13:54

Why don't you instead simply read my comments properly in the 1st place?

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Replying to Justin Bryant:
Danny Kent
By Viciuno
22nd May 2023 13:54

Justin Bryant wrote:

But at least you would have given them the choice is the point.

Also, everyone is overlooking my main point, which is that the fake salary version of this planning (that one or two idiots here think I'm advocating) is a much bigger story (as it's far more commonplace).

Come on Justin, that is exactly what you have done.

Justin Bryant wrote:
"cheaper planning per my comment here"
...link to your post which says
Justin Bryant wrote:
"Why not simply pay them a tax-deductible salary (there is no age or quantity limit for company secretaries, so you could perhaps consider that)?"
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Replying to Viciuno:
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By Justin Bryant
22nd May 2023 13:56

Don't know what you mean. The responses here are getting sillier & sillier, so I'l end there.

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Replying to Justin Bryant:
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By carnmores
22nd May 2023 14:18

Absolutely for Murphy read Neidle. What concerns me is the increasing role of judges who see themselves as guardians of the exchequer. They should be guardians of the law made by parliament as enacted.

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Replying to carnmores:
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By Justin Bryant
22nd May 2023 14:29

Yes. They'll need a spoof website for him soon: https://justicefortaxesnetwork.wordpress.com/2013/01/16/horse-meat-in-bu...

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By kevin503
22nd May 2023 10:06

What a peculiar headline. The story is about private schools and how their fees can be paid from ropey tax schemes. Still, any opportunity to bash the SNP via a promoted headline (and I didn't even vote for them!)

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Replying to kevin503:
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By Justin Bryant
22nd May 2023 10:09

Yes. It's simply a very tenuous way for attention seeking.

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Replying to Justin Bryant:
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By Hugo Fair
22nd May 2023 11:16

Tenuous is being generous ... I got my fresh coffee and settled back to read all the latest bashing of the SNP (if only by association with AMS); but all I got was DN's detailed (if occasionally somewhat arguable) breakdown of the faults of a scheme type - which is not even exclusive to the AMS associate.

I thought the title of an article was meant to be at least tangentially related to the substance of what follows it?

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Replying to Hugo Fair:
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By Justin Bryant
22nd May 2023 11:19

Yes. As Month Python would occasionally say, this is all getting rather silly.
https://en.wikipedia.org/wiki/The_Colonel_(Monty_Python)

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By emanresu
22nd May 2023 11:05

Amusing that, at least here and at this time, the side ad-bar is the bogus money-saving advert:

"New Way To Cut Power[Tax] Bill
This Device Can Lower Your Power[Tax] Bills By 90% (It's Genius)"

There's a lot of it about ;)

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Lone Wolf
By Lone_Wolf
22nd May 2023 12:17

Something I've often wondered about these dividend only shares, but I've never fully looked into - would there be a Value Shift arising each time the parents voted a dividend be paid to the B shares?

They're using the rights they have in their shares to shift value from them to the B shares, albeit only until the dividend is paid.

Maybe there's a "get out" if the value shift is subject to income tax...

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