HMRC have announced a new ‘settlement opportunity’ for tax avoidance arrangements involving certain ‘Remuneration Trusts’ or ‘Creditor Protection Trusts’. It’s open until 31 July 2022.
The announcement doesn’t apply to Employee Benefit Trusts or to Employee-funded Retirement Benefit Schemes. Instead, it’s targeted at a specific class of scheme in which, broadly:
- The beneficiaries of the Remuneration Trust are not classed as employees of the company or business contributing to the trust, or the families of such employees.
- A contribution to the trust is expensed in calculating the profit of a trade or business.
- The contribution is not transferred to any bank account in the control of the trustee of the trust, but to a person involved in the administration of the scheme (a primary administrator).
- The primary administrator extracts the scheme fee before transferring the remaining funds to another person such that they end up under the effective control of a shareholder or director, partner or individual (according to whether the scheme was implemented by a company, partnership or sole trader).
The key point of the announcement – and the reason that it is limited to this particular sub-class of scheme – is that in HMRC’s view the scheme design may contain a fundamental flaw that means that there is no valid transfer of funds to a trust at all. Thus, the settlement opportunity accepts that the potential charge to Inheritance Tax that is often a feature of trust-based remuneration planning schemes is not in point.
Where a company is involved, settlement may be on the basis that the payment is a loan, a distribution, or a payment of remuneration. Where the scheme was put in place by a partnership or sole trader it will be on the basis of disallowing the contribution (together with scheme fees) as a deduction in computing profit. In each case, late payment interest will be charged and, depending on the facts, penalties may also be due.
Instalment payment arrangements may be available. Those taking advantage of them will not pay more than 50% of their disposable income, unless they have a very high level of disposable income. The amount someone will pay into an arrangement each month will depend on their own individual circumstances. There is no maximum time limit for an instalment arrangement, but forward interest will be added for the duration of the arrangement.
For more detail or help on this or other HMRC settlement opportunities, please get in touch with your usual BKL contact or use our enquiry form.
