Spotlight 61: Remuneration trusts

HMRC have published tax avoidance Spotlight 61 ‘Disguised remuneration: remuneration trusts used to reduce profits and disguise income’.

This latest spotlight follows Spotlights 51 and 56 which warned about remuneration trust tax avoidance schemes, explaining why HMRC consider that they do not work, and three tax tribunal decisions released in 2021 and 2022. In all three cases, the same scheme had been used and the tribunal found that the arrangements were designed to artificially reduce company profits and to disguise the income of individuals who were directors, employees and/or shareholders.

In each case, the tribunal disallowed the contributions to the trust and scheme fees for Corporation Tax purposes. In two of the cases, the tribunal further found that loans made to individuals were subject to PAYE and NationaI Insurance Contributions (NICs) as disguised remuneration. In the other case, the trust contribution was treated as a dividend.

HMRC warn that further tax charges, including the Loan Charge and Inheritance Tax, may be due from scheme users and that they will take action against remuneration trust schemes using the full range of legislation. This would include considering whether to issue Follower notices and, if relevant, Accelerated Payment Notices (APNs) as well as using their powers under the Promoters of tax avoidance schemes regime against those who promote tax avoidance schemes.

Anyone who has used a remuneration trust or similar scheme and who is concerned about it, is advised to take independent tax advice and contact HMRC. Anyone still using such a scheme is advised to withdraw from it as soon as possible. Scheme users may be able to settle their position using the Disguised remuneration 2020 settlement opportunity and it may be possible to spread the cost by agreeing to pay the tax due in instalments though interest will still be charged.

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?

Promoters of Tax Avoidance Schemes (POTAS)
Who is a Promoter? What are the Promoters of Tax Avoidance Scheme rules? What does this mean for promoters, intermediaries and clients?

Accelerated Payments & Follower Notices
What are Accelerated Payments and Follower notices? What action is required? What are the penalties for non-compliance? Is there a right to appeal?

External links

Disguised remuneration: remuneration trusts used to reduce profits and disguise income (Spotlight 61) 

Remuneration trust: tax avoidance using loans or fiduciary receipts (Spotlight 51)

Disguised remuneration: tax avoidance by owner-managed companies using remuneration trusts (Spotlight 56)