The General Anti-Abuse Rule (GAAR) Advisory Panel have published details of three opinions dated 11 October 2018 and 12 October on contractor and employee rewards using loans, finding the planning used unreasonable.

Under the planning:

  • An employer employed an individual.
  • The employer provided the individual's services to a customer.
  • The employer paid minimum wage to the individual and loaned the bulk of the balance of the consideration for the services to the individual.
  • The employer then transferred the creditor rights to the loans to a new EFRBS.

HMRC challenged the planning on the basis that there was no reasonable expectation that the loan would ever be repaid and that it was a method of avoiding Disguised Remuneration rules as there was no direct loan from the EFRBS to the individual.

The GAAR panel agreed that some aspects were normal but considered it was abnormal to label the bulk of an employee’s compensation as ‘discretionary’ and it is abnormal for an agency employer to provide the bulk of an employee’s compensation through loans unless it is tax motivated.

The individuals received a much higher percentage of the gross income than they would have done under normal circumstances.

The GAAR panel considered that taken together, the steps were abnormal and contrived and opined that:

  • entering into the tax arrangements is not a reasonable course of action in relation to the relevant tax provisions
  • carrying out the tax arrangements is not a reasonable course of action in relation to the relevant tax provisions

Links

General Anti-Abuse Rule – GAAR (subscriber version)

Disguised remuneration

Disguised Remuneration Zone

External link

GAAR Advisory Panel opinion of 11 October 2018: contractor rewards using loans

GAAR Advisory Panel opinions of 12 October 2018: employee rewards using loans (company and Mr B)

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