Tax Avoidance Loan Schemes | Disguised Remuneration Schemes
KANGS has many years’ experience representing corporate and individual clients in criminal and civil investigations by HMRC arising from such persons involvement in either ‘promoting’ or ‘using’ Tax Avoidance Loan Schemes.
‘Tax Avoidance Loan schemes,’ often called 'disguised remuneration schemes,’ are designed to avoid paying Income Tax and National Insurance Contributions (NIC). These schemes have never received approval from HMRC and they maintain that they never work.
These schemes seek to disguise the payment of wages or salaries by for example converting income into loans or other payments from third parties, with no intention of repayment. This is done to intentionally avoid paying any taxes.
To combat the activity, HMRC introduced the ‘the Loan Charge’ in 2016 and encouraged those involved in these schemes to settle their tax affairs correctly before it took effect, to avoid substantial financial penalties.
On 6 June 2024, HMRC released an updated List of named tax avoidance schemes, adding schemes operated by Cube Umbrella Limited, Mountain View Admin Limited and 365 Umbrella Ltd. Despite the List being extensive, HMRC states that there are others whom information cannot be published because it:
- continues to gather information about schemes being marketed,
- is considering representations made on behalf of various schemes,
- knows that other schemes are in existence, but, at present, has no knowledge of the detail.
Being drawn into such a scheme will, potentially, upon discovery, involve payment of substantial penalties to HMRC.
We assist corporate and individual clients in disputes with HMRC arising from both indirect and direct tax provisions, including those affected by various tax avoidance schemes.
Tim Thompson of KANGS outlines the nature of the operation of such schemes.
Examples of the way Tax Avoidance Schemes
seek to operate.
There are many formats which have been adopted over the years and the following provide an insight into their general nature.
Comparatively simple Scheme formats:
- Payment is made by way of two elements, the first being a wage at a rate equivalent to the National Minimum Wage with Income Tax and NIC deducted. The second being referred to as ‘payments under a conditional annuity purchase agreement’ being payment without such tax deductions. The operators maintain that the second element should not count as employment income. HMRC states that both elements should be treated as ‘normal income.’
- Employees receive payment of part of their remuneration at the National Minimum Wage from which the statutory deductions are made. The balance is disguised as a loan, credit or other payment without the appropriate tax deductions. HMRC states that both elements should be treated as ‘normal income.’
A more sophisticated Scheme.
This involves a pre-existing loan between a director/shareholder and their company. By way of an Option Agreement, the director/ shareholder is released from the obligation to repay the loan but in return for which the director/ shareholder becomes obligated to pay the company an annuity for life. An ‘early encashment’ clause entitles the company to cancel the option for a nominal fee. The company will, in due course, cancel its option with the result that the annuity or loan repayment are never repaid, and the company does not pay Corporation Tax on the ‘loan’ and the individual avoids Income Tax.
In HMRC v AML Tax (UK) Ltd (2022) the First-Tier Tribunal Tax Chamber found, as part of a very detailed Judgment when considering this scheme:
‘in addition to the avoidance of corporation tax under section 455 CTA, the Annuity Arrangements were also designed to enable the individual to avoid income tax on a distribution and/or income tax and National Insurance Contributions on employment income. Therefore, there is an income and/or corporation tax advantage….’
How Can We Assist?
HMRC is continually working to shut down tax avoidance schemes of every nature. This includes sophisticated systems that help high earners or those who have no alternative other than to accept the form of payment imposed upon them such as through ‘umbrella’ payment schemes.
Professional advisers may have encouraged many individuals to use such schemes. However, the Courts have ruled that reliance upon such advice does not absolve users from liability and the onus lies on the user not to knowingly engage in any potentially fraudulent scheme.
If you are facing a criminal investigation by HMRC, we are able to assist you from the outset to include advice and assistance in relation to any initial dawn raid and interviews under caution.
Should you become the subject of a civil HMRC investigation of any nature it is essential that you seek immediate experienced legal assistance.
The Team at KANGS offers vast experience gained from supporting clients involved with disputes of every nature involving HMRC and would be delighted to assist you.
Our Team welcomes enquiries by telephone calls and emails and would be happy to assist.
Tel: 0333 370 4333
Email: info@kangssolicitors.co.uk
We provide initial no obligation discussion at our three offices in London, Birmingham, and Manchester. Alternatively, discussions can be held through live conferencing or telephone.
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