HMRC has published a new tax Spotlight: ‘Rewarding employees and contractors using contrived loan arrangements.’ It highlights two recent opinions given by the GAAR panel on arrangements involving employee rewards using loans.

The General Anti-Abuse Rule (GAAR) is intended to counteract ‘tax advantages arising from tax arrangements that are abusive’.

  • HMRC are required to obtain the opinion of the GAAR panel (GAP) as to whether an arrangement constitutes a reasonable course of action before they can proceed to apply the GAAR.

The arrangements in the cases referred in the spotlight involved loans and transfer of creditor rights into an Employer Financed Retirement Benefits Scheme (EFRBS). One involved a contractor, and the other a company and its employee.

  • The GAP said entering into and carrying out these arrangements was "not a reasonable course of action" and "there was no reason for the arrangements to be structured in this artificial and complex way, other than to seek a tax advantage".

The spotlight highlights the implications of the GAP opinions for individuals who have used very similar arrangements to the ones considered:

  • A designated HMRC officer may issue a counteraction notice without going back to the panel for a new opinion.
  • An accelerated payment notice may be issued if a GAAR counteraction notice is issued.
  • Transactions entered into after 14 September 2016 may be subject to a 60% GAAR penalty.

HMRC are using the spotlight to:

  • Strongly advise taxpayers using these or similar arrangements to withdraw from them and settle their tax affairs. 
  • Remind taxpayers that the loan charge will apply unless they repay their loans or agree a settlement with HMRC, by 5 April 2019.

Useful guides:

General Anti-Abuse Rule (GAAR)
This guide looks at the key features of the GAAR, what areas of tax it covers and what you need to know about the provisions it contains when considering tax planning

Disguised Remuneration
A guide to everything you need to know about disguised remuneration schemes, the loan charge, and how to settlement with HMRC and avoid the loan charge.

Disguised Remuneration final settlement opportunity 
A detailed guide to the November 2017 final settlement opportunity for all disguised remunerations schemes.

FAQs for Disguised Remuneration settlements
This guide looks at Frequently Asked Questions for settling Disguised Remuneration schemes. The FAQs relate to EBTs, EFRBS and contractor loan schemes (employed and self-employed).

External link:

Spotlight 46: Rewarding employees and contractors using contrived loan arrangements