Spotlight 35, published in February this year, concerns any schemes that use annuities to avoid Income Tax and National Insurance contributions as these won’t work. HMRC has committed to investigate anyone who uses such a scheme.
HMRC has become aware of a new disguised remuneration tax avoidance scheme that attempts to avoid Income Tax and National Insurance contributions (NICs). It involves using annuities as an alternative method of paying people for their services, in order to avoid paying tax and NICs on their income.
An annuity is a form of investment where a person pays a lump sum, usually to a pension company, in return for a guaranteed income – either for life or a fixed number of years. Private annuities, such as those used in this scheme, are very rare.
This scheme is mainly aimed at contractors and involves the scheme user being paid in two parts. The first part is a salary, so small that there’s little or no Income Tax or NICs liability. The second part is claimed to be non-taxable, as it’s a capital payment for a deferred annuity.
The scheme is highly contrived and involves the user agreeing to pay the promoter an income under the annuity from a date of their choosing.
Schemes involving annuities are within the scope of the proposed new loan charge, which will apply to all outstanding disguised remuneration loans on 5 April 2019.
HMRC has stated it will challenge all users of this scheme and investigate their tax affairs.
Unless the capital sum for a deferred annuity is paid back in full by 5 April 2019, or you settle with HMRC, the new loan charge will apply to the outstanding sum.
For transactions taking place after 16 July 2013, HMRC will consider whether the General Anti-Abuse Rule (GAAR) may apply. After 14 September 2016, transactions where the GAAR applies will be subject to a 60% GAAR penalty.
The advice from HMRC is that users of this type of avoidance scheme should settle with HMRC as soon as possible. If you don’t you might have to pay additional tax and interest on the outstanding disguised remuneration loans. You could also receive a penalty.
The Bedrock team have experience of helping people settle past tax planning arrangements with HMRC. If you want to discuss how we could help you or your client with settling get in touch today. You can also read about our approach here to settling an EBT arrangement.
