HMRC has been using the Transfer of Assets Abroad (TAA) provisions in successful litigation for contractor loan and EBT loan schemes. Some scheme providers may be caught out by the use of what has been termed "the somewhat obscure anti-avoidance provisions in Section 720 ITA 2007".

In Boyle v HMRC [2013] TC03103 the First Tier Tax tribunal decided that a contractor loan scheme which tried to take advantage of using a loan made in an artificially fast depreciating foreign currency to avoid PAYE and NICs did not work.

The case is one of many variations on a similar theme, where an offshore intermediary is deployed to convert UK earnings into a loan, HMRC added these schemes to its Spotlights last year.

In Boyle, the IT contractor became an employee of a Manx company, Sandfield Consultants Ltd (SCL), after being paid a small salary he was made loans in different currencies. It was engineered by SCL and its associates that due to exchange rate fluctuations that Mr Boyle made a profit of around 78% on the resultant exchange gains. He claimed that this was not employment income. SCL had been under intense scrutiny by HMRC for some time in the early 'noughties' and this is one of many similar cases.

The First Tier Tribunal held that the gains were taxable as an employment benefit.

The case is of interest because HMRC argued that the income was taxable under the Transfer of Assets abroad provisions. It argued that:

  • Mr Boyle was liable to income tax in respect of the arrangements by virtue of the transfer of assets provisions in IRC v Brackett; Brackett v Chater (Inspector of Taxes); Chater (Inspector of Taxes) v Brackett 60 TC 134.
  • Entering into an employment contract with a company registered and resident abroad constituted a transfer of assets by Mr Boyle to SCL.
  • Mr Boyle had “power to enjoy” the income of the SCL as the income was dealt with and calculated so as to endure for Mr Boyle’s benefit and he received benefit, in particular the loan, out of the income or money available as a result of actions in respect of any assets directly or indirectly representing that income. 
  • It was also submitted by HMRC that Mr Boyle received a capital sum within s739(3) ICTA as a result of which he was liable to tax on the full amount of such income was chargeable in Mr Boyle’s hands.


HMRC has also using the Transfer of Assets Abroad (TAA) provisions in respect of some EBT cases. Although new EBTs are now subject to the new disguised remuneration rules of Part 7a ITEPA 2003 HMRC is still tacking a backlog of old cases. We note that one of the scheme providers has written to clients warning them that HMRC regard their old EBT loans to be income and "as such are taxable or in the alternative are caught by the somewhat obscure anti-avoidance provisions in Section 720 ITA 2007 - ‘the transfer of assets abroad’ legislation."

Without doubt, the legislation will seem less obscure for scheme promoters when they start correspondence with HMRC and if their cases reach the tribunals but given that these rules have been around since the 1930s it makes one question why it would not have been considered in relation to any scheme which involves creation of offshore assets.

It is also interesting to note that HMRC has decided not to continue with changes which reform the TOA rules (deemed to complicated by consultees) and that is is currently drawing up proposals to tackle tax avoidance using offshore employment intermediaries. The changes in this area may make some UK employers less eager to engage staff via foreign intermediaries.

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