In their decision on the 5th July, the Supreme Court agreed with HMRC that the tax avoidance scheme used by Rangers Football Club
doesn’t work. They said that Rangers should have deducted Income Tax and National Insurance contributions from payments they made to the scheme, which was an employee benefit trust (EBT).
In paragraph 39 of the Court’s decision, they set out the principle that employment income paid from an employer to a third party is still taxable as employment income.
HMRC’s view is that this principle applies to a wide range of disguised remuneration tax avoidance schemes, no matter what type of third party is used. This includes:
- EBTs – including variants within these schemes where no loans are made from the EBT but instead the funds remain in, or are invested by, the trust
- disguised remuneration routed through employer-funded retirement benefit trusts
- a range of contractor loans schemes
The facts of each case will determine where the earnings point arises based on decided case law.
If you have previously used such tax avoidance schemes, which though previously legal, it’s worth noting that HMRC intends to use this decision to take action against many of the disguised remuneration schemes. This will include HMRC considering, in appropriate cases, whether to issue follower notices and, if relevant, associated accelerated payment notices.
It will also include accelerating litigation where users choose to continue challenging HMRC on their scheme. HMRC’s advice is to withdraw from the scheme and settle any outstanding tax affairs. That way it’s possible to avoid the costs of legal action and minimise interest and penalty charges on the tax that should have paid.
As experienced tax advisers we have worked with a number of accountants and their clients to arrange settlement of trust based tax planning. It’s not a simple process driven mechanism and we’d strongly suggest you talk to use before approaching HMRC. To read more about how we can assist take a look here.
