Spotlight targets profit extraction scheme

Companies should beware of a scheme that uses advertising and marketing expenditure to reduce taxable profits and disguise employment income in the form of redeemable loyalty points warns HMRC.

In its latest spotlight HMRC says it is aware of a scheme being marketed that aims to reduce companies’ corporation tax liabilities by including expenditure for ‘advertising’ in the profit and loss account of the user.

The company claims this expenditure is tax deductible. However an amount equal to at least 80% of the amount spent is returned personally to the directors or employees in the form of ‘loyalty points’. These are converted to monetary amounts charged to prepaid cards issued in the names of the directors or their associates. The directors of the companies their associates or both use the prepaid cards to spend those sums. It is claimed that these points...