HMRC have introduced a new short term settlement opportunity for the users of certain types of remuneration trust tax planning schemes where they consider that the scheme design may be fundamentally flawed.

At a glance

  • The opportunity, which closes on 31 July 2022, has strict eligibility criteria and will not apply to Disguised remuneration schemes such as Employee Benefits Trusts (EBTs) or Employer Financed Retirement Benefit Schemes (EFRBs).
  • Typically it will apply to schemes which were used by director shareholders only (and not wider employees) where an offshore personal management company is involved in a fiduciary capacity and loans were made to the director shareholders.
  • It is also available to certain self-employed scheme users and partners where a similar type of structure has been created.
  • Options for settlement include distribution treatment, earnings basis and paying s455 tax on overdrawn directors loan accounts.

Overview

The settlement opportunity applies to users of schemes known as 'Remuneration Trusts' or 'Creditor Protection Trusts'.

  • It only applies to remuneration trust schemes where HMRC’s view is that the scheme design may contain a fundamental flaw that means there is no valid transfer of funds to the trust so that the scheme transactions can effectively be unwound.

There are three options for settlement for employment based schemes:

  • The contribution to the trust is unwound such that the corporation tax deduction is removed for this and all scheme fees. The amounts loaned treated as Overdrawn directors loan accounts with resulting s455 tax implications.
  • Loan amounts are treated as distributions and taxed accordingly. The contribution to the trust is not corporation tax deductible nor are the scheme fees paid. If the company pays the income tax this will be a benefit in kind for directors and further distribution for non-director shareholders.
  • Employment earnings basis. The contribution to the trust is deductible for corporation tax but scheme fees are not. The loan amounts are subject to income tax and NICs under PAYE.

The settlement basis for the self-employed/partners is:

  • Scheme contributions are disallowed as deductions from self-employed profits.
  • All scheme fees are also disallowed.

In all options:

  • Interest will be due from the relevant original tax payment date with penalties where appropriate.
  • Penalties for inaccurate tax returns will not be charged if it is shown that the inaccuracy was not deliberate and the taxpayer took Reasonable care.

HMRC have confirmed that where settlement is reached under these terms and all liabilities are settled, including those that are unprotected by HMRC, they will not seek to apply tax charges under Part 7A ITEPA 2003 or the loan charge.

  • The terms do not reference the position where the loan charge has already been paid. Our experience to date is that users of these schemes have not declared and paid the loan charge which is perhaps why HMRC have not addressed this point.

As with the general disguised remuneration settlement opportunity time to pay will be available for individuals who do not have disposable assets and who have income less than £50,000 (5 year terms) or £30,000 (7 year terms) in the year of settlement.

Taxpayers looking to use these settlement terms should contract HMRC my emailing  This email address is being protected from spambots. You need JavaScript enabled to view it. or calling 03000 590964 in advance of the 31 July deadline as the process may take several weeks or months.

Useful guides on this topic

Disguised remuneration loan charge
What is disguised remuneration? What is the loan charge? When does the loan charge apply? Will the loan charge affect me?

Disguised remuneration 2020 settlement opportunity
What is HMRC's position on disguised remuneration loans where settlement was not reached by 30 September 2020? Can a settlement still be reached?

FAQs for Disguised Remuneration Settlements
Can I just repay my loans? Which is cheaper: the loan charge or settling? How much will it cost to settle? And many other FAQs.

External link

HMRC guidance: Settlement opportunity for users of remuneration trust tax avoidance schemes 


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