Remuneration Trusts - HMRC Settlement Opportunity
19 July 2022
Original content provided by BDO United Kingdom
HMRC’s work targeting taxpayers who have used marketed tax arrangements is continuing and it has recently released an ‘opportunity’ for users of certain historic trust arrangements to agree and settle their liabilities with the tax authority. The arrangements were used to reward directors, shareholders and/or self-employed individuals and were commonly known as “Remuneration Trusts” or “Creditor Protection Trusts”.
This Settlement Opportunity is HMRC’s latest move to tackle disguised remuneration arrangements, which, broadly, are arrangements used to reward directors, shareholders and/or self-employed individuals instead of normal income to avoid Income Tax and National Insurance Contributions (NICs).
HMRC maintains its view that anti-avoidance rules apply to such arrangements, making them invalid, and that Income Tax and NICs fall due. Although, HMRC acknowledges that there are circumstances, based on recent case law, where different tax treatments could apply, for example dividends or company loans.
As different variations of the arrangements were promoted, the settlement terms are complicated and whether they are beneficial, and which one(s) are suitable, will depend on the specific facts and circumstances for each taxpayer. There are number of settlement options available and the tax liability under each option will differ.
Some options allow for more flexibility in terms of the amounts due and the timing of when liabilities need to be paid, however, all have strict criteria which must be met to qualify for the settlement terms.
Interest on late payment of tax will be payable where HMRC has protected its legal position (by raising enquiries and assessments). However, penalties will not be payable where it can be proved that the taxpayer has taken ‘reasonable care’ over their tax affairs, for example by relying on advice. Again, this is a point which will depend on the facts and circumstances (e.g. the tax year in which funds were taken).
HMRC is willing to offer instalment arrangements to pay the liabilities due under this settlement opportunity, but this will also depend on the facts and circumstances for each taxpayer.
This settlement opportunity is to be welcomed, but its terms are complicated. Whether settlement is the best resolution option will very much depend on the facts and circumstances (including commercial issues such as their practice and personal finances, refinance options etc.).
There is now a very limited window of availability under this settlement opportunity, as HMRC have set a deadline of 31 July 2022 to register and provide the proposed computational basis for settlement.
Please get in touch with Fiona Hall or Claire McGuigan if you have any questions.