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'Re-describing loans' to avoid disguised remuneration charge will not work, says HMRC


A "crude" scheme being used by taxpayers in an attempt to avoid a new tax charge on certain types of disguised remuneration will not work, according to HM Revenue and Customs (HMRC).

The tax authority has issued a 'spotlight' alert warning taxpayers against "re-describing" payments received through loan agreements, such as those from employee benefit trusts (EBTs), as sums of money held by them in a 'fiduciary capacity' rather than loans. It said it had become aware that scheme users were being told they could do this by signing documents stating that the sums received are not loans.

"Renaming something now doesn't change what happened in the past," HMRC said in its alert. "Attempting to describe a loan as something else doesn't mean it's not a loan."

"The loan charge will apply to more than just loans, including any form of credit or other right to a payment regardless of what it's called. If you adopt this approach and choose not to reflect the loan charge on your tax return you may face a significant penalty in addition to the tax charge," it said.

"The only way you can avoid the new loan charge in 2019 is by making a repayment of the loan balance or settling your tax liability with HMRC in advance," it said.

HMRC also warned that taxpayers who "deliberately [mislead] or [conceal] information from HMRC" could face criminal prosecution.

The loan charge referred to by HMRC will take effect on 5 April 2019, and will apply to the outstanding balance of loan arrangements classed by HMRC as disguised remuneration that were made after 5 April 1999.

HMRC has been targeting the abusive use of EBTs and other forms of disguised remuneration for a number of years, as it is its view that they artificially lower income tax and NICs that would otherwise be paid on employee remuneration. Last month, the Supreme Court ruled that payments made by the now-insolvent company formerly behind Rangers FC to players and executives at the club through an EBT were earnings, and therefore subject to income tax and NICs.

Tax expert Paul Noble of Pinsent Masons, the law firm behind Out-Law.com, told the Financial Times that the Supreme Court's decision "gave a fillip to HMRC" in its fight against tax avoidance through the use of disguised remuneration schemes. The scheme that was the subject of the latest alert was a "crude" one and a sign of the lengths to which people anticipating hefty tax charges in 2019 might be prepared to go to avoid them, he said.

"HMRC takes a dim view of people trying to pull wool over its eyes," he said.

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