Spotlight targets disguised employment income scheme

An avoidance scheme which uses limited liability partnerships to disguise employment income is the subject of HMRC Spotlight 66.

HMRC says it has become aware of a scheme called ‘the partnership model’ which is marketed to companies as enabling them to avoid payment of corporation tax and the deduction of PAYE and National Insurance from payments to employees.

The arrangements involve a series of steps whereby an employee signs an agreement to end or vary their contract of employment in return for a compensation payment. The employee’s contract is then terminated or varied with the employee becoming a partner of an LLP and the compensation payment treated as a capital contribution to an LLP. However the employee does not receive the compensation payment directly but continues to receive the same net pay as though their contract had not been ended or varied....