HMRC have issued Spotlight 53: Disguised remuneration: tax avoidance using capital advances, joint and mutual share ownership agreements about schemes to avoid Income Tax and NIC using capital advances and offshore share ownership arrangements.
HMRC describe the arrangements as follows:
- A contractor becomes an employee of an umbrella company or connected entity, such as an offshore company.
- They may sign a loan or capital advance agreement and a joint (or mutual) share ownership agreement, confirming how their salaries are to be paid by the employer company.
- They receive two separate payments; a nominal salary, with payment of little or no Income Tax and NICs, and some form of ‘capital advance’, paid as weekly or monthly loans.
- The company carries out various share transactions, involving an offshore joint (or mutual) share ownership trust. These result in financial gains and possibly dividends for the employee. The employee has no involvement in the share transactions, but receives monthly or yearly summaries showing their loans being repaid from the capital gains and dividends.
As with all their other spotlights on disguised remuneration schemes, HMRC states:
- These types of schemes are never approved by HMRC and employers and employees are likely to end up paying additional tax and interest, and may be subject to penalties, including inaccuracy penalties and penalties for carelessness.
- If you’re using these or similar arrangements you will be challenged by HMRC and liable for Income Tax and NICs on the amount of the loans received.
- For transactions that took place after 16 July 2013, HMRC will consider whether the General Anti-Abuse Rule (GAAR) applies and you may be subject to a 60% GAAR penalty
- If you are using these or similar schemes you are strongly advised to withdraw from them and settle your tax affairs.
Links to our guides: