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HMRC have published Spotlights five and six relating to further avoidance schemes that they believe to be ineffective.
The department says tax returns for which these schemes have been used are likely to be investigated and full settlement of the tax due will be sought, plus interest and penalties where appropriate.
Spotlight five concerns companies that reward employees without operating PAYE, by making payments through trusts and other intermediaries that favour the employees or their families.
The Revenue's view is that when the funds are allocated to the employee or his beneficiaries, those funds become earnings on which PAYE and NICs are due and should be accounted for by the employer.
HMRC add that in their view an inheritance tax charge may arise on the participators of a close company.
Unless the participators are excluded beneficiaries and have not had funds applied for their benefit, such as the receipt of a loan, a charge to inheritance tax arises when the funds are paid to the trustee by the close company.
Relief is only available to the extent that a deduction is allowable to the company for the year in which the contribution is made. Later payments of earnings out of the trust that may trigger a deduction to the company would not qualify for relief.
According to HMRC, participators affected by this may need to self-assess a liability to inheritance tax (see also Revenue and Customs Brief 49/09).
The taxman is challenging examples of such arrangements and considering legislative options to end further usage of these schemes.
The sixth Spotlight relates to employer-financed retirement benefits scheme (EFRBS).
HMRC say they are aware of schemes where companies claim a corporation tax deduction for employer contributions to an EFRBS on the basis that either the contribution to the scheme or a subsequent transfer to a second scheme is a qualifying benefit.
This would allow the company to secure a corporation tax deduction before any benefits are paid by the scheme to the employee. HMRC say that neither transaction involves the provision of a qualifying benefit.
They disagree that there is any ambiguity in the law around the meaning of the phrase ‘transfer of assets’.
The legislation defines ‘qualifying benefits’ and such benefits are plainly, from the context, benefits that if paid under the terms of an EFRBS might fall within the employment income charge.
So in that context, say HMRC, a ‘transfer of assets’ should be interpreted as a transfer that could give rise to such a charge.
This will primarily mean a transfer of assets to the employee but also includes a transfer to a member of the employee’s family.
Neither an employer contribution to an EFRBS nor a transfer between such schemes gives rise to a possible employment income tax charge on the employee.
So there is no ‘qualifying benefit’ entitling the employer to a deduction.
The Revenue says it will challenge examples of such arrangements as and when they arise.
