HMRC have just released their latest Spotlight in which they say they intend to attack certain tax avoidance schemes. Whilst the wording is quite broad it appears clear that the emphasis is on schemes for self employed contractors.
The spotlight (which is detailed below) mentions the new ‘disguised remuneration’ rules. The first draft of these rules was published at the end of 2010 and they are now incorporated into the Finance Act 2011 and already it seems clear that HMRC are already having issues with them.
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.
This is a fairly typical response by HMRC and is part of a continuing offensive to tax avoidance schemes. Not all planning is under threat but care should be taken before entering into any of these arrangements in particular.
If you have issues or concerns raised from the above article please speak to our tax specialist team at HSJ who will be happy to discuss your circumstances with you in more detail. Just call 0845 365 1000 or email us at Tax@hsj.uk.com.