Welsh taxes, Disguised remuneration settlements, and Interest rates

In our latest tax tips email for accountants we said:

Every week we endeavour to bring you three nuggets of new tax knowledge, or at least a timely reminder. This week we have details of two new taxes to be imposed in Wales from 1 April 2018, and new guidance from HMRC about settling disputes relating to disguised remuneration. We also have a reminder that the interest rates HMRC charges on late paid tax are increasing.

Below is just an extract from that email. To receive the full email when it is published each Thursday, simply follow the link on the right (or below, if you’re reading this on a mobile device)

Disguised remuneration settlements

For years thousands of taxpayers took income in the form of loans from their employer, or through a less direct route such as an employee benefit trust (EBT). Many of those individuals did not understand the full implications of being taxed on the benefit of a loan, and were told the tax saving was totally legal.

Now the world is a different place, and HMRC views any “loan in place of salary” arrangement as disguised remuneration, and will seek to tax it as salary, whenever it was provided.

For arrangements entered into in 2011/12 and later years, taxpayers (or their employers) are encouraged to settle with HMRC to pay tax, NIC and interest, under ITEPA 2003, pt 7A. Where the employer has already settled the tax arising due the operation of an EBT scheme there should be no further tax or NI due from the employee.

In other cases where the loan remains outstanding at 5 April 2019, HMRC will impose a loan charge, as specified in schedules 11 and 12 of F(no.2) A 2017 (due to be passed today). This tax charge may well bankrupt some individuals, as the total of the outstanding loans will be treated as income in 2018/19. This means the majority of the loan will be taxed at higher rates than would have applied than if the loan had been taxed as salary at the time it was provided. There is no top-slicing relief mechanism. The amount of loan outstanding will be estimated by HMRC, which could be much higher than the actual amounts provided as loans.

To avoid the loan charge in 2019 the taxpayer (individual or employer) needs to settle with HMRC before 30 September 2018. HMRC has produced guidance notes for taxpayers, and separate guidance for tax agents, which explain how a settlement can be arrived at, including a payment plan.

The first step is to talk to your clients about this problem before they receive a nasty bill from HMRC. The next stage is to seek specialist advice, and our tax investigation experts will be happy to help. This is a very complex area, and the amounts of tax involved, even for one individual taxpayer, can be very large.

Topical tax tips: Company cars, EBTs and football, VAT and golf

In last week’s newsletter we disguised the practical tax points as articles concerning; fast cars, football and golf. More seriously, we looked at how the tax charge for using a company car for private journeys will change in the future, the implications of the HMRC win against Murray Group Holdings Ltd, and VAT repayments for golf clubs.

This is an
extract from our topical tax tips newsletter dated 12 November 2015
(5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

EBTs and football 
Even if you have no interest in employee benefit trusts (EBTs) or football, you will have seen the coverage of HMRC’s win against Murray Group Holdings Ltd (owners of the former Rangers FC) in the Scottish Court of Session. But what does that mean for other taxpayers? 
An EBT is a structure which in recent years has been used as a means to avoid PAYE and NIC on employees’ earnings. In simple terms the employer places funds in the EBT, the EBT moves those funds to sub-trusts which are ear-marked for particular employees and their families. The sub-trust makes a loan to the employee, which it has little or no expectation of ever being repaid. Thus the employee receives the funds, and if the planning worked, the employee would be taxed only on the benefit in kind of receiving an employment-related loan. 
HMRC always argued that the payment by the employer to the EBT was consideration for the services of the employee, and hence should be taxed as the employee’s pay. HMRC lost this argument at the First-tier and Upper Tribunals, but it succeeded with a slightly different argument at the Court of Session. If you are interested in how this happened read the blogs: EBT and Rangers FC parts 1 and 2. 
Lots of companies, even quite small ones, used EBT schemes in the past. HMRC will interpret the Murray Group Holdings case as evidence that none of those EBT schemes worked, even if the facts were slightly different. HMRC offered companies who had used an EBT before April 2011, an opportunity to settle the tax and NIC due with minimal penalties. That opportunity is still there, but the penalties will not be minimal as the deal will have to be negotiated individually between the company and HMRC. 
Where the company does not voluntarily settle with HMRC it should expect to receive a follower notice which invites the company to alter its tax returns, in this case PAYE returns. If the issue is already the subject of a tax enquiry the company should expect to receive an accelerated payment notice, which demands that the tax is paid within 90 days. 
For any of those outcomes the company will need expert tax investigations advice. Our experts are happy to help with that.

This is an
extract from our topical tax tips newsletter dated 12 November 2015
(5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

full newsletter contained links to related source material for this
story and the
other two topical, timely and commercial tax tips. We’ve been
publishing this newsletter weekly since 2007; it’s clearly written
and focused on precisely what accountants in general practice need to
know about each week.
You can obtain future issues by registering here>>>