On 3 August the first ever decision of HMRC’s General Anti-Abuse Rule (GAAR) panel was published.
The panel decided in favour of HMRC in relation to arrangements which were designed to reward two employee/shareholders using gold, involving an Employee Benefit Trust (EBT), whilst avoiding PAYE/Income Tax, NIC and Corporation Tax (CT).
The implications for the taxpayer are that the tax avoided will be recovered with the potential for a 60% penalty (if the arrangements were implemented on or after 15 September 2016).
The published decision of the panel reports that the arrangements were structured in the following way: a purchase of gold for the employees was funded by the employer company; the gold was immediately sold by the employees; the company’s liability to pay the third party gold supplier was settled by the employees in return for a director’s loan account credit in favour of the employees; in connection with the purchase of the gold a long term obligation was created under which the employees were required in the future to pay to the trustees of the EBT an amount at least equal to the purchase price of the gold (plus indexation).
In essence, the taxpayers argued that the amounts were not remuneration under normal rules (s62 ITEPA 2003) and any amounts which may fall into the ‘disguised remuneration’ regulations (Part 7A ITEPA 2003) were reduced to nil because of ‘consideration paid’. Likewise, relief against CT was argued to be due as the expense was incurred, accounted for and not denied by regulations restricting relief for payments to an EBT (s1290 CTA 2009).
The panel decided that whilst the setting up of the EBT was not abnormal or contrived, the following aspects were: the use of gold to reward employees; the immediate sale of the gold by the employees; and employees fulfilling obligations to fund an EBT set up by the employer.
The panel also decided that the ‘most likely comparable transaction’ i.e. the one which, absent the abnormal and contrived aspects, would have been implemented, would be an employer funded EBT making a taxable loan to the employees (with PAYE/Income Tax, NIC and CT relief arising simultaneously).
Other taxpayers who have implemented arrangements considered by HMRC to be sufficiently similar to these may be required to follow the decision of the panel. They may also face similar penalties. It is unclear whether HMRC may view e.g. any arrangements which include ‘fettered payments’ as being sufficiently similar in this regard.
Anyone concerned as to the implications of this decision for them should take advice: the GAAR regulations are complex and will need to be considered very carefully in light of the specific facts and circumstances of each case.
If you would like to discuss any issues arising, please contact us.