HMRC’s new settlement opportunity makes reference to tax “avoidance schemes involving remuneration trusts” However, this relates to a range of arrangements that are designed to provide a “tax-free” environment for the business and the stakeholders they benefit. Depending on the facts and circumstances of the case, HMRC believes that the scheme design may, in some cases, have a fundamental flaw in that there is no valid transfer of funds to the trust and therefore does not have the effect for tax purposes that is intended.
The settlement opportunity is only available to individuals and companies whose remuneration trust scheme meets certain criteria that are set out fully in the settlement terms. The settlement opportunity does not apply to any individual or company under criminal investigation by HMRC and may not be available where an appeal related to the tax consequences of the scheme’s use has been referred to a tribunal.
Anyone wishing to take advantage of the settlement opportunity must complete tax calculations based on the settlement terms applicable to them and send these to HMRC by 31 July 2022. The relevant contact details are:
- E: CA_RTSettlements@hmrc.gov.uk
- T: 03000 590 964
ICAEW’s Tax Faculty recommends that businesses seek specialist help in preparing the calculations and making the settlement
HMRC may investigate and litigate users of remuneration trust schemes if they do not take advantage of the settlement opportunity.
If, at some point in the future, a court rules that tax is due on an alternative basis, the settlement terms will be withdrawn and HMRC will expect any scheme users who have not already settled to pay tax in accordance with the court’s ruling.
What are the arrangements this opportunity relates to?
There are two main types of arrangement – those relating to companies and those relating to sole traders and partnerships.
Broadly speaking, the company arrangement involves a company setting up a trust (which is not an employee benefit trust or an employer funded retirement benefit scheme) and claiming a tax deduction for contributions to the trust. The contribution is made to a primary administrator rather than a bank account in control of the trustee of the trust. The primary administrator may transfer funds to a scheme user, typically a director or shareholder of the company or a personal management company (PMC) controlled by the director or shareholder. The scheme user uses the money in the PMC as they wish. Alternatively, the primary administrator may transfer funds to a secondary administrator who then lends the money to the scheme user.
In the sole trader or partnership arrangement, the only difference is that the scheme user is a sole trader or a partner of the partnership and the funds are made available to the owners of that business.
What settlement opportunities are available?
The disguised remuneration settlement terms 2020 remain open. If a scheme qualifies either under the existing terms or the terms of the new settlement opportunity, the scheme user can decide which settlement opportunity to apply. Note, however, that where general employees benefit from the arrangement, only the disguised remuneration settlement terms 2020 can be used.
There are three different bases for companies to calculate the tax and make a settlement under the remuneration trust settlement opportunity. However, the distribution basis is not available where:
- in HMRC’s view the facts demonstrate that the money paid by a company through the scheme to its director should be charged as income from employment; or
- the money transferred to directors or shareholders is not in proportion to their shareholding.
In all cases, late payment interest may be due. Penalties may arise where, for example, a return has been filed containing an inaccuracy which was either deliberate or where reasonable care was not taken. Taxes already paid, (eg, on any benefits-in-kind treated as received by the directors), can be offset against the additional liabilities arising. Payment plans can be arranged.
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