Latest News

HMRC offers new settlement terms for “Remuneration Trusts

HMRC offers new settlement terms for “Remuneration Trusts

On 11 April, in a surprising announcement, HMRC published terms under which it is prepared (for a short period) to settle enquiries into tax avoidance schemes which used a particular type of trust, a Remuneration Trust or RT (“the RT Settlement Opportunity”). The announcement was surprising in the sense that there is already a Settlement Opportunity for disguised remuneration tax avoidance schemes (“DR schemes”), the “Disguised remuneration settlement terms 2020” which has been open for applications since 13 August 2020.

The RT settlement terms will only be open for applications until 31 July 2022, and is only open to individuals or companies whose scheme use meets certain criteria set out in the terms.  Although there is no specific reference in the terms to the RT tax avoidance scheme designed by Baxendale Walker LLP, the publication of the RT Settlement Opportunity follows 2 decisions of the First Tier (Tax) Tribunal late last year, in relation to the use of Baxendale Walker LLP’s RT scheme. Those are the September 2021 decision in the case of Marlborough DP Limited, UKFTT 0304, and the December 2021 decision in the case of Strategic Branding Limited, UKFTT 0474 (the later decision is the subject of an appeal which has been listed for hearing by the Upper Tier tribunal, although no date has, as yet, been set for the hearing).

There are separate settlement terms under the RT Settlement Opportunity for companies and self-employed individuals/partnerships. For companies there are 3 options, although option 3 is effectively the same as the existing settlement terms for DR schemes (under which PAYE and NIC liabilities arise on the basis that contributions to the trust are “earnings”) and no further consideration is given in this article to option 3.

Options 1 and 2, in treating the trust contribution as either a loan by the company to the shareholder (Option 1), or as a distribution to the shareholder (Option 2) represent a fundamental change in HMRC’s approach to settling DR tax avoidance schemes, albeit only those schemes meeting the criteria outlined in the terms. These options appear to be a response by HMRC to the FTT’s decision in the Marlborough DP case that the “connection test” to an employment was not met and, therefore, the scheme did not involve a payment of earnings for PAYE and NIC purposes. Settlement under option 1 includes the company’s liability arising under the “loan to participator” rule and the individual’s income tax and Class 1A NIC liabilities under the “beneficial loan” provisions, while under option 2, the individual will pay income tax, at the dividend tax rates, on the distribution. Under both options 1 and 2, the company will be required to pay corporation tax on the aggregate of the contribution to the trust and the scheme fees.

It would appear, at face value, that both corporate and self-employed users of Baxendale Walker LLP’s RT scheme should be eligible to settle their enquiries with HMRC on the terms published on 11 April, although each case will need to be considered on its own facts and circumstances.  However, a condition of eligibility for the terms of the RT settlement opportunity is that the trust is neither an EBT nor an EFRBS which, in the writer’s experience, will exclude most other trust-based company tax avoidance schemes from the RT Settlement Opportunity.

The above is only a brief overview of the new settlement terms. If you have used Baxendale Walker’s RT scheme or you have advised a client on the use of such a scheme and would like to discuss whether the new settlement terms may apply to you or your client, and if they do apply whether the terms are advantageous to you, please feel free to contact us.

As mentioned above, the terms of the RT Settlement Opportunity are only available until 31 July and there is, therefore, only a limited amount of time to properly consider the terms against the specific facts and circumstances of any user of the scheme, and to apply to HMRC if the terms are, or may be advantageous by comparison with the alternative risks and continued uncertainty of litigation.