Malcolm Emery, Tax Partner in Stephens Scown’s private client team, warns HMRC are still hot on the heels of tax avoiders who have previously used disguised remuneration loan agreements to avoid paying tax.
What is the Issue?
Well over a decade ago, Glasgow Rangers Football Club were famously involved in a tax avoidance scheme, which resulted in them paying their employees (essentially highly paid professional footballers) by way of loans through an offshore employee benefit trust. The idea being that these loans would never be repaid by the employees or possibly written off, resulting in significant tax savings.
What happened next?
Following the Glasgow case, HMRC introduced new tax avoidance rules to catch employees who were being paid in very creative ways to avoid tax. These are known as the disguised remuneration rules.
Despite the introduction of these rules, disguised remuneration tax avoidance arrangements continued to be popular in the marketplace particularly amongst contractors.
A retrospective “loan charge” was, therefore, announced in the 2016 budget for individuals who have avoided income tax by receiving their earnings via non-repayable loans and this charge will come into effect on 6 April 2019.
HMRC’s settlement opportunity
HMRC has advised employers and employees who have used these types of arrangements to settle their outstanding tax liabilities. A deadline of 31 May 2018 was initially set for employers/employees to register their intent to settle their tax debts. As this date has come and gone, HMRC have announced that they intend to leave the opportunity open. Taxpayers now have until 30 September 2018 to indicate their acceptance and provide all relevant information to HMRC. The latest guidance issued by HMRC encourages registration “as soon as possible”.
What happens if I don’t settle?
If you fail to register with HMRC by the new deadline, you will face sanctions, including a minimum penalty of 100% of the tax payable and being publicly named unless you have a “reasonable excuse” for the failure (in which case standard penalties apply). Most individuals who entered into these types of arrangements may have already spent the tax on day to day living expenses and will struggle to pay several years worth of tax in one lump sum. As the new rules can go back a number of years many see the new tax charge as retrospective.
Malcolm Emery is a dual qualified solicitor and chartered tax adviser and previously worked for HMRC. Malcolm has extensive experience of dealing with tax enquiries and can be contacted on 01392 429240, or email firstname.lastname@example.org.