A company engaged in a tax scheme to avoid PAYE and NICs. The Tax Tribunal found that the scheme did not work; infact it had not been put into effect.

The company, Uniplex (UK) Limited signed up to a tax avoidance scheme in 2004. A dozen employees signed a salary waiver and their taxable pay was reduced to around the National Minimum Wage. Their employer paid a percentage of its profits to a new company and the idea was that the employees who were also shareholders of the new company would then receive a "profit share" after the scheme promoter had taken its cut from the new company as a mixture of cash loans and benefits. The exact details of the scheme changed between 2004 and 2005 and a discretionary trust should have been involved but was apparently not set up either.

HMRC issued a PAYE determination for the years 2004 to 2007 and the case came to the First Tier Tax Tribunal. The company was unable to provide the Tribunal with evidence to prove that the scheme did what it alleged to do on "the wrapper". The scheme promoter, who the Tribunal declined to name in full, appeared to have left limited instructions in any case and the Tribunal also found that documents were back-dated. 

The judge noted his thoughts on the scheme of thie nature in his judgment. He suggested that as all that the employees gave, despite their salary waivers were their services as employees, any sums that they received could only be earnings. This echos the findings in the recent case of PA Holdings (dividends were found to constitute earnings and subject to NICs) and the earlier judgment in Hochstrasser v Mayes (discussing whether a compenation payment received by was earnings).

The judgment perhaps gives an indication of the Tribunal's future response to these types of scheme, although the tax law has subsequently changed.

Disclosure of tax avoidance schemes upate

Onloookers may be surprised that more of these sort of cases did not hit the headlines. New measures were introduced in the 2010 Finance Act (effective from 1 January 2011). These give HMRC a better chance of tracking down the promoters and obtaining client lists, see DOTAS Update. 

Source: Uniplex (UK) Limited v HMRC [2010] UKFTT 422 (TC)