A profit extraction tax avoidance scheme involving gold bullion, which aimed to beat the Disguised Remuneration rules and was first identified by HMRC back in 2016 in its Spotlight 30, has been tested by the First Tier Tax Tribunal (FTT). It seemed a surprising case to appeal, as the appellant company and their adviser had ceased trading. The FTT found that it did not work.

Wired Orthodontics signed up for a tax avoidance scheme created by Qubic Tax Ltd.

The scheme appears to be the same as one noted in HMRC's Spotlight 30. It involved the creation of an employee benefit trust, an obligation to make contributions to the trust by the company and the purchase of gold bullion which was sold immediately after it was purchased in order to avoid the Disguised Remuneration provisions in Part 7A ITEPA and the restrictions on deductions for Corporation Tax on employee benefit contributions in s.1290-1293 CTA 2009.

HMRC disagreed that the scheme worked and issued PAYE determinations and disallowed Corporation Tax relief.

On appeal, the FTT found that:

  • The directors barely understood the mechanism of the scheme, and somewhat unbelievably, as far as the tribunal was concerned, had claimed to never have received tax advice on the scheme from Qubic or their own accountants.
  • The scheme transactions were highly contrived and aimed to seek to achieve the combination of £300,000 tax-free income for the directors and a tax deduction for the Company.
  • The fee paid out, presumably to Qubic for providing the scheme, amounted to £45,000 and was made to secure the tax benefits including the Corporation Tax deduction for the Company. Consequently, it was not made 'wholly and exclusively' for the purposes of its trade.

The FTT concluded that the scheme did not work, amounts withdrawn from the company via the scheme were taxable as earnings and the fee paid to the scheme designers did not qualify for Corporation Tax relief.

Editors note

The judgment refers to the directors' accountant, who was formerly a director of the Peleton. Please note that this individual has no connection whatsoever to this website, www.rossmartin.co.uk or to its sister company Ross Martin Tax Consultancy Limited.

Useful guides on this topic

Disguised Remuneration Zone
A zone all about the 'Disguised Remuneration', the Loan Charge, and how to settle up with HMRC in respect of any pay that has been disguised as loans and includes contractor loans and Employee Benefit Trust loans. 

Acting for a trust? Start here…
An essential guide for advisers and trustees on how to manage the tax affairs of a UK trust and avoid common pitfalls.

HMRC Spotlight 30
An artificial scheme which involved a theoretical obligation to pay the value of gold bullion to a trust at some point in the future. Legislation was introduced subsequently to ensure that all loans, debts or obligations arising from disguised remuneration schemes will be taxed as earnings if not already taxed or repaid by 5 April 2019.

PAYE Determinations
What to do if you receive a PAYE Regulation 80 or 72 determination

External links

Wired Orthodontics Limited, Ian Hutchinson and Susan Bessant v HMRC [2023] TC8679

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