With the dust now settling on the recent Finance Act and the notoriously complex “disguised remuneration” provisions now contained within the tax legislation, it is perhaps not unsurprising that some of the more esoteric tax providers out there are still intent on offering solutions that purport to side-step these provisions.
We have come across a couple recently and whether they do offer any solace is highly debateable and certainly something that we as a firm are not comfortable with. What is for sure is that they will be litigated against by HMRC and the efficacy of such planning is only ever likely to become clear after a lengthy court process.
Those entering into such esoteric arrangements should be looking for significantly back-end loaded fees that are only payable in the event the planning is proven to succeed.
The full text of the recent spolight is issued below.
Spotlight 12: Taxing the rewards for work carried out for a UK based employer (23 August 2011)
HMRC are aware that new tax avoidance schemes that seek to avoid Income Tax and National Insurance contributions (NICs) are being advertised to contractors, highly paid employees and those using recruitment agencies. It is claimed that these schemes get around new disguised remuneration rules.
Arrangements may involve payments passing through a series of companies, loans from a third party or an offshore alleged employer, a deed of covenant, secondments from one employer company to another or claims of self employment, etc. In HMRC’s opinion these arrangements do not succeed in avoiding the tax and NICs due. HMRC will challenge these arrangements and litigate where necessary to recover unpaid tax and NICs.
Current legislation ensures that rewards and recognition from working for UK-based businesses are charged appropriately to UK Income Tax and NICs. This legislation applies whether the rewards are routed through employee benefit trusts, employer funded retirement benefit schemes or through any other intermediaries, either as loans, transfers of assets or other payments. The legislation will also apply to such third party arrangements where an employment is disguised as self employment or a contractual arrangement.
Those intent on avoiding Income Tax and NICs by using trust arrangements should also be aware that there could be adverse Inheritance Tax (IHT) and trust tax consequences regardless of whether they themselves set up the trust. These include IHT charges when contributions are made to the trust, when funds are transferred from a trust to a sub-trust or removed from the sub-trust, when uncommercial loans are made by the trustees and at the ten year anniversary of the trust.