Update on Disguised Remuneration (DR) and PAYE liabilities on April 2019 loans

In our Newsletter last month, we commented on the proposal in the Budget Statement for transferring a PAYE liability from an employer to an employee where the employer is unable to pay the liability.  The Budget Statement indicated that the power for HMRC to transfer an unpaid PAYE liability (on a DR loan charge in April 2019) would only apply in cases where the employer was not located in the UK (“offshore employers”).

In a technical note dated 1 December, HMRC has confirmed that the new power, included in Part 4 of the draft Finance (No. 2) Bill which was also published on 1 December, will be restricted to unpaid PAYE liabilities of offshore employers. Unpaid PAYE liabilities of employers located in the UK will not be affected by the new power.

However, the technical note also confirms that HMRC will use existing powers (in Regulations 80 and 81(3) of the PAYE Regulations) to collect unpaid PAYE liabilities of UK employers from employees who have received disguised remuneration, including liabilities under the April 2019 loan charge.

One positive aspect included in the technical note was the clarification, in cases where an employer is unable to pay including cases where the employer has been dissolved or no longer exists, that the employee will not be liable for any unpaid Class 1 NICs due.

This latest technical note from HMRC, read in conjunction with their settlement terms published on 7 November, provides some much needed clarity on where individuals and employers now stand on the potential cost of settling their PAYE liabilities in relation to DR schemes. It is now clear that the ability of HMRC to collect tax from employees before 2019, in relation to contributions made to EBTs and EFRBS, will be determined by reference to the “step” in respect of which the PAYE liability arises. If the PAYE liability arises on the cash contribution made by the employer to the EBT or EFRBS under the “redirection of earnings” principle on which the Supreme Court based its decision in the “Rangers” case, HMRC will be unable to collect any unpaid PAYE liabilities from employees before April 2019, except in cases where they are able to transfer the labilities to directors under provisions in insolvency law.

In cases where the redirection of earnings principle applies, this could provide useful breathing space and an opportunity to prepare for future tax charges.

Conversely, if the obligation to operate PAYE arose on the “allocation” of the contributions by the trustee, on an appointment or transfer to a specified sub-fund, sub-trust or a trust for a specific individual or family, HMRC will be able to collect an unpaid PAYE liability from an employee, under existing powers in the PAYE regulations, before 2019. It remains to be seen whether HMRC will actively pursue collection of unpaid PAYE liabilities from employees under their existing powers or will wait until 2019 to collect the tax due. Every case will, presumably, be judged by HMRC on its own merits.

We now have as complete a picture as we are ever likely to have and in that context, it now makes sense for all employers and employees with disputed PAYE liabilities from DR schemes (or, in other cases where a loans charge will arise in April 2019) to evaluate their circumstances and decide on the best option for them in bringing the dispute to a close or, in understanding what liabilities will arise in April 2019.

 If you would like to discuss your own situation, please contact us.

Thanks to the Chancellor, the UK is about to become a little less attractive to overseas property investors. The recent UK Budget announcement included plans to ensure that non-resident investors in UK commercial property will, from April 2019, pay UK capital gains tax or corporation tax on gains. Although this is labelled as a consultation, it is very clearly stated that the strategic decision to extend the scope of UK property taxation has been made and the consultation is simply about the details of its implementation.

The measures announced also extend the scope of the existing Non-Resident Capital Gains Tax (NR CGT) regime for UK residential property. That regime is extended beyond closely held companies, trusts and individuals to include diversely held investors, meaning that institutional investors and investment funds as well as non-close companies will now be liable to the NR CGT charge.

Disposals of “envelopes”

Another new measure that will apply from April 2019 to both commercial and residential property will ensure that gains on disposals of interests in entities that are “property rich” will be chargeable to UK tax. For these purposes, an entity that is “property rich” is defined as deriving 75% or more of its value from UK land. The 75% test will be based on the gross asset value of the entity and, unhelpfully, will ignore debt.

There is an additional test to determine whether a disposal of a property rich entity has taken place. This test requires that the non-resident owner of the interest in the entity or parties related to them must hold at least a 25% interest in the entity being disposed of or have held such an interest at any time in the 5 years ending on the disposal date. Additionally, the interests of related parties will be aggregated in the 5 years ending with the disposal to determine whether the 25% test has been met.

Funds and life assurance

The 25% test has been introduced to prevent small investors being liable to UK taxes on disposals of interests in investment vehicles in relation to which they have little knowledge or control over investment strategy. However, non-UK resident investors in UK Collective Investment Schemes will be liable for NR CGT if the fund meets the 75% test and the non-resident investor meets the 25% test. It seems unlikely there will be many instances where a non-UK resident investor will find they are liable to NR CGT as an investor in a UK fund.

The situation is different for non-UK funds, as the fund itself will be liable to NR CGT if it holds UK property directly or, more commonly, via a special purpose overseas company and disposes either of the property itself or of its interests in the special purpose company, provided in the case of the latter that the property rich test is met and also the 25% test.

Additionally, the existing exemption for life assurance companies from the existing NR CGT regime is being withdrawn from April 2019; this is likely to be seen by HMRC as closing down any possibility of structuring UK real estate investments through life bonds by private investors to avoid NR CGT.


As with NR CGT for residential property, there will be rebasing to the start of the regime. This will be straightforward where UK property interests are directly owned but it is likely to be complex where the interests are indirect and are held as shares in unlisted companies and private funds. Interestingly, rebasing for the new charges will either be on the April 2019 value or the original acquisition cost of the property. Unlike the existing NR CGT regime for residential property, there will not be an option to time apportion the gain in a straight line over the full ownership period pre and post April 2019. Also, the base cost for indirect interests will be determined solely by the value at April 2019.

Compliance issues

As is now the custom, there is an anti-forestalling rule. This applies to counteract the effect of any arrangements entered into from 22 November 2017 onwards to obtain an advantage in relation to the new provisions where those arrangements involve double taxation agreements. In plain English, this means that using treaty protection that restricts taxing rights over, for example, the disposal of shares in a non-UK company, to the home jurisdiction of that company won’t be allowed. However, if as at 22 November 2017 the company in question already meets the property rich test, the 25% test is also met, and the company is in a jurisdiction where gains are treaty-protected, it would seem anti-forestalling would not apply as no arrangements will have been entered into to create an advantage in relation to the new regime.

HMRC has recognised there will be challenges to ensure that non-UK residents comply with the new regime. The reporting regime for non-corporate investors will mirror the existing requirement under the NR CGT regime for residential property to file a return within 30 days of completing the transaction. Companies will have to register for UK corporation tax at the time of the disposal but the normal corporation tax time limits for filing and payment will apply. However, an additional reporting requirement is proposed for indirect disposals by non-UK residents. Broadly, an acting UK adviser (the type of adviser is not specified) who is aware of the transaction and cannot be certain that the transaction has been reported to HMRC will have the obligation to report the transaction to HMRC within 60 days.

Finally, the consultation document makes no mention of interests in UK commercial property becoming “relevant property” for UK inheritance tax purposes, as was the case with UK residential property interests with effect from 6 April 2017. If that remains the case, non-UK domiciled investors may still wish to hold UK commercial property through offshore entities for IHT purposes.

Non-resident investors are now faced with some difficult choices to make between now and April 2019 and we, and more pertinently, the UK property industry, await developments with interest.

If you would like to discuss any of the above, please contact us.

The Budget Statement provided only very brief but potentially significant details of the government’s proposed measure for transferring an income tax liability from an employer to an employee in respect of an April 2019 disguised remuneration loan charge.  Further details will be provided in the draft Finance Bill 2018 and in a specific technical note which is due to be published on 1 December.

Rather surprisingly, the Budget details indicate that the measure should only apply to cases where the employer is based offshore and is, therefore, outside the scope of the PAYE regulations.  In our experience, the vast majority of company EBT and EFRBS’ schemes were set-up by onshore employers and the measure should not, therefore, apply but a considerable number of employers used in “Contractor schemes” were based outside of the UK and, individuals who have used such schemes to avoid income tax on their income from consulting services in the UK, could now face significant liabilities on outstanding loan balances in April 2019.

Anyone who may be caught by the proposed measure should now be considering whether the disguised remuneration settlement terms published by HMRC on 7 November provide a lower cost opportunity to settle any outstanding tax and NIC liabilities compared with the liabilities that will otherwise arise in April 2019.

However, employees (and former employees) of onshore employers who, it appears, should not be affected by the measure (based on the Budget details) are not necessarily “home and dry” should their employer be unable or, for some other reason, fail to meet any PAYE liabilities in relation to their disguised remuneration. The PAYE regulations already provide HMRC with rights to recover liabilities from an employee in certain circumstances. Importantly, the regulations do not rely on whether a loan has been made or is still outstanding but are concerned with the original contribution to an EBT or EFRBS and/or the allocation of the contribution to a separate trust, sub-fund or sub-trust.

Therefore, any employee (or former employee) who has received disguised remuneration but is unaffected by the loan charge in 2019 will still need to understand whether HMRC can make a direction to transfer a PAYE liability to them personally. This will require a careful analysis of the specific facts in each case.  Additionally, and especially in cases where the PAYE regulations do not allow HMRC to recover PAYE liabilities from disguised remuneration paid to directors of a company, it is HMRC policy to use insolvency law in appropriate cases in order to recover unpaid PAYE (and NIC) liabilities from the directors.

We are dealing with a substantial number of disguised remuneration cases and if you would like to discuss your situation, please contact us.

If you’re an employer, employee or a contractor who’s been involved with a disguised remuneration scheme, you may have been wondering how the new tax charges treating loans as employment income on 5 April 2019 will affect you. HMRC has been thinking about it too, and this has heavily influenced their new guidance on voluntary settlements of EBTs, EFRBS and Contractor Loan schemes.

Following an embargo on settlements, HMRC has now published revised settlement terms. The announcement from HMRC comes in the wake of the Supreme Court judgment in July on what has become known as the “Murray Group Holdings”, “Rangers” or “Big Tax Case”. The new settlement policy provides welcome clarity and also some good news in relation to certain aspects of settlement where HMRC is now taking a more pragmatic view than previously. However, other aspects of the policy are less welcome and reflect HMRC’s bargaining power in the context of the 2019 legislation.

Importantly, HMRC has not committed itself to a policy of settling all cases on the basis of the decision in “Rangers” that EBT contributions were “a mere redirection of earnings”. Instead, the point at which PAYE is considered to have been triggered will be decided on the facts of each case. In practice, this will often be a choice between the time funds were contributed to an EBT or EFRBS for the benefit of most or all employees or the point when funds were appointed to a sub-trust or sub-fund. In many cases these two events are almost simultaneous. However, even in such cases the question of whether the PAYE is triggered by a real or notional payment by the employer could have a major impact on the ability of HMRC to recover tax from an individual before the new loans charge in 2019; this will be relevant in cases where the employer is not able to fund the liability.


Key points of detail for employers, employees and contractors: 

  • Firstly, there are improved terms for contractors. HMRC has given up on the idea of taxing the full amount paid to the intermediary, which means that only the net amount after fees will be taxable. Additionally, HMRC will not insist on NIC being paid where the contractor has become an employee.
  • PAYE & NIC won’t be due on contributions used to pay expenses of the trust; this is new and welcome, but the guidance doesn’t provide full details of the expenses that will be covered.
  • “Netting down” for NIC to reduce the PAYE liability is still available if this is allowed by the trust deed and provided the NIC liability is paid out of the trust fund. However, in many cases the only trust assets are loans to beneficiaries, so part-repayment of loans will be needed to generate the saving, which may not be practicable. Even if it is, the loss of corporation tax relief on the NIC expense if the employing company would otherwise have met this cost needs to be considered.
  • A corporation tax deduction will be given for the original contribution in the year of contribution only if that year is open – although in many cases the corporation tax deduction will already have been claimed and therefore becomes “guaranteed”.
  • A corporation tax deduction for promoter fees will be allowed; this is also new and welcome. Again, the CT deduction will be given for the original contribution in the year of contribution only if that year is open.
  • If no CT deduction was claimed previously on the contribution, it can be claimed in the year of settlement or the earliest open year.
  • If a Regulation 80 PAYE Determination was issued for tax at Basic Rate, the balance of tax due must be settled to prevent a 2019 loan charge, but interest won’t be charged on the top-up tax paid; this is disappointing, as we would expect the settlement to be limited to the PAYE & NIC that the employer would have been liable to account for at the time.
  • Section 222 tax charges won’t arise if the trust deed includes an obligation to reimburse the employer for PAYE and the trustee or the employee actually pays the tax. This represents a significant tightening of the policy under the previous settlement opportunity and is likely to mean that more section 222 charges will arise. However, in many cases there is no open personal tax enquiry on the employee for the year in question and this will prevent a section 222 charge.
  • It’s important to remember that if the original PAYE liability arises on a real payment by the employer (rather than a notional payment such as transfer to a subfund) and the employer pays the tax and is not reimbursed, there will be a liability for the employee under section 223. This is because section 223 charges arise in the year in which the PAYE is paid, not the year it was originally due.
  • Although not mentioned in the HMRC guidance, there is another important point on section 223. If the employer has paid PAYE under an Accelerated Payment Notice and subsequently withdraws their appeal against a Regulation 80 Determination, perhaps due to the issue of a Follower Notice or because they’re settling with HMRC, a failure to reimburse the PAYE paid under the APN will also result in a section 223 charge. Therefore, the implications of settling or withdrawing appeals need to be carefully considered.
  • Employers who have already settled with HMRC under the previous option of disclaiming the CT deduction will have to brace themselves for further liability in 2019 if any loans are outstanding; this is very unfortunate but not entirely unexpected in the context of HMRC’s objectives for the 2019 loans charge.
  • HMRC have confirmed that PAYE & NIC won’t be charged on accrued and unpaid loan interest when loans are forgiven as part of the settlement. The guidance is silent on the question of whether there will be tax for the employee under section 731 on the unpaid interest but it seems unlikely that there is any “available relevant income” to provide a benefit in these circumstances.


To describe the options as complex is an understatement; in reality there are so many variables in the mix that identifying the right course of action can be very difficult.

In cases where HMRC is out of time to collect any money before 2019 that doesn’t necessarily mean that doing something before then – whether it’s settlement with HMRC using voluntary restitution or something else – is a bad idea. In fact, the complexity of the tax legislation, HMRC policy and the fact patterns in individual cases mean it is essential to review options to identify the optimal course of action as soon as possible.

Please contact us if you’d like to explore your options.

Following the recent decision of the Supreme Court in the Rangers case and HMRC’s subsequent announcement that it would be inviting participants of Disguised Remuneration (“DR”) schemes to register for settlement under the terms of a new Settlement Opportunity (“SO”), is the SO now the only option for DR scheme users?

HMRC’s announcement on 10 August indicated that details of how to register under the new SO would be issued in the coming weeks although, at the date of writing, the details have yet to be published.

In the meantime, there has been much speculation among DR scheme users and advisers that registering for whatever terms are offered by HMRC under the SO is now “the only game in town”, but is that actually the case?

In our view, it will not be the only option in every case. It is still essential for advisers to fully acquaint themselves with the facts and circumstances of each case and only then, by applying the principles established in Rangers (and other relevant case law), can the potential PAYE and NIC liabilities from a company’s participation in a DR scheme be determined.

Also, a recent but much lower profile decision of the First Tier Tribunal (“FTT”), in the lead case which considered Premier Strategies’ Declaration of Trust EBT scheme, OCO Limited; Touchglaze (UK) Limited [2017] TC06031 should not be overlooked in determining whether the redirection of earnings principle is in point.

Although, the FTT decided the OCO; Touchglaze case in HMRC’s favour, the decision was made under the Ramsay doctrine of purposive construction, on the basis that an appointment made by the trustee to a sub-trust of an EBT was earnings (the sub-trust being, effectively, a “money box” of the sub-trust beneficiary). The FTT also held that there had not been any earlier redirection of earnings, on the basis there was no evidence that the directors were, at any point, entitled to a specific sum from their employer (which they could have redirected to the trust).

Although, in both Rangers and OCO the DR schemes failed, the different basis on which the schemes failed could be an important distinction in cases where the employer is now unable to meet its PAYE and NIC obligations in full, because it has insufficient net assets and is, therefore, insolvent. The question then arises whether any unpaid liabilities can be transferred to the employee who is the beneficiary of the EBT sub-trusts? The PAYE regulations provide a mechanism to transfer the PAYE liability in some cases but not in others and, therefore, in cases where the company cannot pay its liabilities it will be of crucial importance to know on what basis the liability arises.

There may also be a limited number of cases where the fact pattern (of what HMRC argue is a DR scheme) does not fall within the parameters of, either, the Supreme Court decision in Rangers or, the FTT decision in OCO of what constitutes a payment of earnings. In such cases, are there still genuine grounds to defend the company’s position on PAYE and NIC liabilities and, if so, at what potential cost for the company? In cases where loans have been made to beneficiaries, the new earnings charge on loans outstanding in April 2019 could also be an important factor.

Please contact one of the Trident Tax team if you would like to discuss any particular DR scheme cases to discuss what options other than settlement under the new SO might be available.

The body regulating Solicitors in England & Wales has just issued an extraordinarily stern warning to those who provide advice to clients wishing to avoid tax contrary to the intentions of Parliament using arrangements which ultimately fail.

The SRA’s warning includes the following:

To be involved in such arrangements…will leave [you] open to the risk of disciplinary proceedings as well as committing a criminal offence…Where schemes are defeated and solicitors have advised on the efficacy of such schemes, we will investigate this as evidence of misconduct…”

(See the full statement here)

The reference to the risk of a Solicitor committing a criminal offence has caused something of a stir. It appears to go beyond the warning issued jointly by the leading accountancy and tax advisory bodies earlier this year which includes a less draconian but nevertheless stern warning that:

“…Such behaviours would lay a member of one of the bodies open to disciplinary action.

(See the CIOT’s press release here)

It is not entirely clear what lays behind the SRA’s reference to criminal behaviour. Although often conflated in public discourse, a distinction would normally be drawn between tax avoidance arrangements that are found to be ineffective (since the law does not apply to the facts in the way intended by the taxpayer, even if approved by a legal advisor in this context) and criminal tax evasion, which generally requires evidence of deception and dishonesty.

The SRA’s warning may be seen as resonating with the new statutory criminal offence (effective 1 October) of failing to prevent the facilitation of tax evasion (‘Corporate Criminal Offence’, ‘CCO’). These new rules are of particular relevance to professional advisory firms and the only defence against a conviction and unlimited fine would be to show that reasonable prevention procedures are in place – so the new rules require quite urgent action on the part of professional advisory firms.

Whatever lays behind the SRA’s particular choice of words, it does seem very clear that every possible lever is being pulled in the fight against unacceptable tax avoidance and evasion.

We are able to help any business, including professional advisory firms, deal with the new CCO regulations and any related issues arising. Please contact us if you would like to discuss how we can help you.

Since 2014, HMRC has issued over 75,000 Accelerated Payment Notices (APNs) covering the entirety of the tax avoidance schemes it had under investigation before the new rules were introduced and, in the process, has collected over £4 billion in tax.

Most observers would agree with HMRC that this can be seen as a success in terms of the idea behind APN’s – which was to get money to the Treasury up-front before any conclusion is reached as to whether the tax avoidance schemes actually worked or not. HMRC, clearly fortified by its success so far, has indicated that it has a further 600 schemes in its sights and an additional 80,000 cases under investigation.

Shooting first has clearly had the desired effect….but not without some misfiring.

It transpires that 10% of APN’s were not upheld on review: bearing in mind the number of APN’s and that the review is carried by HMRC (so may not be viewed as fully independent) this indicates that around 7,500 businesses and individuals received serious and significant tax demands that were unlawful.

This aligns with our experience at Trident, where we have been asked to review a large number of APN’s for businesses and individuals and have found a number of examples of errors. Most commonly, we found that HMRC had failed to follow the rules in relation to time limits in connection with their enquiries and the issuing of formal documentation. This requires close examination of all the paperwork and an understanding of the sometimes complex administrative rules.

If you, your business or one of your clients are in receipt of an APN, we would strongly recommend checking that the rules have been properly observed. Whatever view you take on the rights and wrongs of tax avoidance schemes, payment of tax can only be demanded by HMRC when it is due in accordance with the law; and the evidence suggests that HMRC gets it right most…but not all…of the time.

If you would like to discuss any APN or related ‘follower notice’ issues, please contact us.


The recently published Finance Bill 2017 No.2 contains the new rules for deemed domiciles.  The good news is that the plans for protecting some of the of the advantages for non-doms from existing non-UK trusts have been captured in the legislation. An offshore trust set up by an individual when they were non-UK domiciled will be protected going forwards. The existing anti-avoidance provisions will not apply in full; trust income and gains will not be attributed to and taxed on a UK resident settlor as it arises once they become deemed UK domiciled under the new rules. Instead, a UK resident settlor of such an offshore trust will be taxed as and when distributions and benefits are provided to them or “close family members” from the trust.

The rules that protect trusts going forward will be very valuable to those settlors who become deemed UK domiciled from 6 April 2017 onwards. It is therefore important that settlors, trustees and beneficiaries do not do anything to jeopardise a trust’s protected status. A trust will lose its protection and become tainted if the settlor or another trust connected with the settlor contributes further assets to the trust. The legislation specifies certain situations which will cause a further settlement to occur. Broadly, the settlor cannot enter into any arrangement with the trustees that is not on arm’s length terms and results in extra value passing to the trust.

There are detailed rules on loans between settlors and trustees that define arm’s length e.g. interest paid by trustees to a settlor must be at or above the official rate, whilst interest paid by settlor to trustees must be at or below the official rate. This means that loan arrangements must be monitored and reviewed at least annually to ensure the limits are not breached.

Any existing loan from a settlor to a trust made before 6 April 2017 will be treated as creating a further settlement if it is not already on arm’s length terms. There are, however, transitional rules that give settlors and trustees some time to amend loan arrangements in order to prevent a further settlement occurring and the trust becoming tainted. The loan must be put on commercial terms before 6 April 2018 but importantly, the revised terms must be applied for the whole of 2017/18 i.e. a full year’s interest must be paid at a commercial rate.

There is also a danger of creating a further settlement if an existing loan with arm’s length terms is varied and put on non-commercial terms e.g. if interest is capitalised, the term for repayment is extended indefinitely or the interest rate is set below the official rate.

Trustees should review any loan arrangements in place with the settlor of a protected trust and consider whether action is required prior to 6 April 2018. Going forwards, trustees of a protected trust must consider the implications of any transaction with a settlor in advance to determine whether there is a risk of tainting the trust’s status.

The Supreme Court unanimously ruled in favour of HMRC in the Murray Holdings case (Glasgow Rangers). This was outlined in one of our earlier news items, which you can read here. The decision made it clear that employment earnings should be subject to PAYE; it made no difference that they were paid via a third party such as the EBT used by the football club. HMRC believes that the decision will have wide ranging consequences for other tax planning arrangements involving third parties, which it groups under the heading Disguised Remuneration (DR) schemes.

HMRC will be inviting participants of DR schemes to register an interest in settling their tax liabilities arising from the use of these arrangements. Settling will prevent further immediate action by HMRC, as well as reducing interest charges that would otherwise be payable and giving access to extended payment terms, where these are needed.

This could prove to be a welcome policy decision from HMRC. Many participants in such schemes are already looking to settle but are facing negotiations with HMRC whilst simultaneously dealing with Accelerated Payment Notices and HMRC’s Debt Management. The suggestion that HMRC may hold off further immediate action and offer extended payment terms may make settling historic tax schemes easier and less painful.

If you want to discuss the possibility of settling any tax scheme with HMRC, please contact one of our team or email us via the web site.

A senior HMRC official has often been quoted as suggesting that “the difference between avoidance and evasion is the thickness of a prison wall”. Whether or not apocryphal, and despite its metaphoric appeal, this does not really help anyone to understand what differentiates failed tax planning (or failed “avoidance”) from behaviour that might amount to criminal conduct.

In 2016, the promoters behind Greystone Financial Services were found guilty for their part in a £2.2 million fraud. The scheme involved clients investing in a film partnership and recovering tax rebates by making claims for their share of the partnership’s trading losses. However, the investors needed to be active in the trade in order to qualify for the full amount of relief. When HMRC investigated the records it found evidence suggesting that the promoters may have exaggerated the activity of the partners by creating false records. The false records were found to be part of a deception that resulted in HMRC being cheated and led to the promoters going to prison. It was the dishonesty and deception that turned a (failed) tax avoidance arrangement into criminal tax evasion.

In the past, tax planning arrangements were arguably simpler and therefore easier to implement. A series of anti-avoidance provisions has changed the landscape for tax avoidance arrangements. This includes Disclosure of Tax Avoidance Schemes, General Anti-Abuse Rule, Disguised Remuneration Rules, Targeted Anti-Avoidance Rules, and other measures.

Employment Benefit Trust (EBT) tax planning may provide a useful illustration of how this changed landscape may be problematic in this context. The advent of the Disguised Remuneration legislation in December 2010 stopped EBT arrangements from working by triggering a PAYE/NIC charge if certain relevant steps occurred. Some arrangements were designed to avoid a relevant step under the new rules by inserting additional steps, changing the flow of money, introducing new non-cash assets for use as rewards, swapping debt or creating a commitment to make payments at a future date. Such changes inevitably made planning arrangements more complicated. Some arrangements involved ostensibly non-commercial, even abstract, reasoning behind transaction steps.

Steps which do not feel “real” (or even comprehensible) to the participants are likely to be more difficult to implement in the real world. This can lead to errors in execution and perhaps for some a temptation to gloss over them and even misrepresent what actually happened. This is one way how greater complexity could lead to behaviour which may be viewed as (or may actually be) dishonest and potentially criminal. We have seen HMRC target these risk areas in recent investigations.

In summary, tax planning (including avoidance) may fail because the Tribunals or Courts decide that the law does not apply as intended to the facts, although those facts were true and honestly presented. This would result in additional liabilities to tax, interest and potentially penalties in the event that reasonable care had not been taken; but not a prison sentence. But if the true facts were not honestly presented, with the intention of deceiving HMRC to secure a tax benefit that was not due, then that could well turn failed tax planning and avoidance into criminal tax evasion.

In light of this, our recommendations would include the following: be wary of unnecessary complexity; take the time and effort to understand arrangements; take advice, especially when faced with uncertainty over complex tax and other laws; exercise diligence in carrying out transaction steps; review the position post-implementation; and, perhaps most importantly, document and present the facts honestly, resisting any temptation to deceive HMRC.

If you are concerned about any of the issues raised or would like to discuss any aspects, please contact us.