HMRC has issued its spotlight "Capital Gains Tax: Entrepreneurs' Relief tax avoidance scheme".  The scheme aims to turn contracting income into capital.

This features a scheme designed to allow the taxpayer to pay 10% tax on income.

Under this type of scheme:

  • Individuals sell the beneficial ownership of their company to a Cypriot entity.
  • As part of the deal, they take up employment with the Cypriot entity.
  • They remain Director of the company and the company continues to invoice for its services.
  • Monthly payments are received by the taxpayer and Entrepreneurs' Relief is claimed.

In this Spotlight:

  • HMRC advise that the scheme includes artificial steps and consider the plan to be highly contrived.
  • They will challenge all cases where CGT relief is misused and investigate the tax affairs of anyone using this scheme.
  • They will open an enquiry into the Tax Return when submitted and seek full payments of the tax due, plus interst and, where appropriate, penalties.

This is another avoidance scheme targeted at contractors.

An email address is provided for taxpayers who wish to discuss their use of this scheme with HMRC and who do not have a contact.

Links

Anti-avoidance: HMRC's spotlights

Guides for contractors:

Contractor tax planning: does it work?

PSC Contractor update: what's new from April 2016

External link

HMRC's guidance Capital Gains Tax: Entrepreneurs’ Relief tax avoidance scheme