On 11 April 2022, HMRC released a formal settlement opportunity to participants in tax avoidance arrangements commonly known as “Remuneration Trusts” or “Creditor Protection Trusts”. Applications to enter the opportunity need to be submitted (along with full supporting calculations) by 31 July 2022.
In our experience, this type of arrangement was chiefly promoted by one prominent adviser, and they were implemented by a significant number of taxpayers, whether companies, owner managers or self-employed sole traders.
Technical background
HMRC view remains that the Disguised Remuneration rules apply to such arrangements and that both PAYE and NIC falls due - although it acknowledges that there are circumstances where the dividend treatment of payments could apply.
HMRC says that the settlement opportunity only applies to Remuneration Trusts because in its view the arrangements “may contain a fundamental flaw that means there is no valid transfer of funds to the trust”. As this is key legal point, we believe that it would be prudent for a detailed analysis of the facts to be carried out for each taxpayer.
The terms
As different variations of arrangements were promoted, the settlement terms are complicated and whether they are beneficial and which one(s) are suitable will depend on the specific facts and circumstances for each taxpayer. While the settlement offer does allow relevant taxpayers to settle their position without the costs and worry of defending themselves in litigation, HMRC does, however, make it clear that the terms produce the sort of financial outcome that it believes Court judgements would reach.
HMRC appears to recognise that the financial settlement may be limited to those years where it has protected its legal position (i.e. by opening enquiries and issuing assessments at the correct time). However, it also appears to offer “voluntary restitution” terms which may be worthwhile for some taxpayers to consider, for example, if there are still funds in the Remuneration Trust that the beneficiary would want to access.
Interest on late payment of tax will be payable for any settlement liabilities where HMRC has protected its legal position, but penalties will not be payable where it can be proved that the taxpayer has taken ‘reasonable care’ over their tax affairs. Again, this is a point which will depend on the facts and circumstances (e.g. the tax year in which funds were taken).
HMRC is willing to offer instalment arrangements to pay the liabilities due under this settlement opportunity, but this will also depend on the facts and circumstances for each taxpayer.
BDO Analysis
This settlement opportunity is to be welcomed, but its terms are complicated – more so than previous settlement opportunities.
Whether this settlement is the best resolution option open to a beneficiary of a Remuneration Trust will very much depend on the facts and circumstances (including commercial issues such as a pending transaction or bank refinance).
Please get in touch with Fiona Hall or Claire McGuigan if you have any questions.