HMRC has published guidance on recognising disguised remuneration tax avoidance schemes and which explains how individuals can settle their tax affairs, ahead of the introduction of the new loan charge. Here we take a look at the changes and what it could mean for people who have used trust based planning arrangements.

One of the main changes relates to the guidance on how settlement terms are calculated for contractors. Settlement will be on a net basis – income tax will be applied on the loans received, rather than the gross amount paid by the end user. This means that the fees deducted from the gross amount by intermediaries (scheme expenses) will not be taxed as part of income or profits.

Previously this has not been the case for all schemes and provides welcome clarity.

Those who have used trust based tax planning have until 31st May 2018 to register their interest in settlement. We wouldn’t advise delaying settlement until next year as interest will continue to accrue plus there will potentially be increased IHT charges as a result. We also suspect HMRC will continue to issue Follower Notices where possible, these impose a strict 90 day timescale within which to settle. Failure to settle within the 90 day window will result in a penalty of 50% of the ‘denied advantage’.

If you’re an accountant your client may be planning to sell their business, retire, or pursue different commercial interests. All of these can be complicated by the uncertainty of unresolved tax strategies.

How we can help

We’ve worked with a number of accountants and their clients to manage the settlement of trust based planning arrangements (EBT’s and EFRBS), several of which resulted in clients being owed money by HMRC rather than the other way around. These were specific circumstances but we can confirm that for nearly all of our cases the final settlement figure has never been that which was initially proposed by HMRC. As an example, in one recent EBT case, we were engaged to manage the settlement process on the client’s behalf and seek the lowest possible settlement figure. We challenged the initial settlement computation produced by HMRC following the discovery of several significant errors which have been highlighted below:

  • Basic details relating to the EBTs were incorrect
  • IHT charges were incorrectly calculated
  • The Corporation Tax adjustment was incorrect
  • The Benefit in Kind set off wasn’t high enough
  • The final settlement paperwork contained various drafting errors.

Next steps

If you or your clients want to explore the settlement option we strongly advise that you talk to us before approaching HMRC to resolve this matter. In our experience, the calculations prepared by HMRC are unlikely to be the most advantageous.

If you’d like to have an initial conversation about settlement of tax planning arrangements do get in touch with us on 0115 778 8533 or email hello@bedrocktax.co.uk

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Call us on 0115 778 8533 for a free consultation.

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