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HMRC offers deal on remuneration trust schemes

Tax
13/04/2022
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Many companies were sold remuneration trust planning schemes on the promise they would reduce the tax payable by both the company and the founders. 

HMRC believes these schemes do not work and has spent years challenging them.

These challenges happen in HMRC’s Counter Avoidance directorate and they have been slowly working towards a coherent strategy to bring their enquiries to a close.

Under these enquiries, many companies could suffer significant tax liabilities as well as interest and even possibly penalties. However, due to the difficulty in bringing the large number of avoidance cases to conclusion, HMRC has introduced a new settlement opportunity for those that have used particular types of remuneration trust.

This settlement opportunity could be a huge relief to some of the companies involved, but they must take action immediately - the opportunity is only open until July and there could be significant work involved to meet the requirement of the settlement rules.

The remuneration trust schemes were largely a follow on from the ubiquitous employee benefit trusts (EBTs). For a long while, EBTs were considered to be sound planning, but too often they were used in a way that HMRC did not foresee and HMRC has been grappling with the issues for the best part of the last two decades.

It was not until around 2017 when HMRC received the Supreme Court decision in the Rangers case that full-time really was called on a lot of this EBT planning. However, in the run-up to that, many of the promoters of these types of schemes had already moved on. Encouraged to do so by new legislation, known as the ‘disguised remuneration’ rules, they sought to create new schemes which would not be included in these widely drafted rules.

What followed was the remuneration trust – the subject of this settlement opportunity. There are many varieties, but largely the settlement opportunity HMRC has opened up requires that the beneficiaries under the trust are not classed as employees. That doesn’t mean that employees cannot benefit, but they must benefit for some other reason.

HMRC’s view is that these schemes do not work, and there has been some recent first-tier tribunal litigation on remuneration trusts, but the key point to note is that HMRC is not going to leave them alone.

The settlement opportunity provides three options available under which a favourable outcome could be reached, although it should be noted that the exact outcome will depend on the facts of each case.

Also, there are some exclusions. For example, the opportunity is not open to employee benefit trusts nor employer funded retirement benefit schemes.

If you have used a remuneration trust scheme and would like to discuss details of what a settlement could look like, or for us to review other HMRC avoidance enquiries, please fill in our online enquiry form or contact David Rose directly.

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