HMRC offer a new remuneration trust scheme settlement opportunity
Terms detailing how HMRC will approach settlement of certain remuneration trust schemes have been published.
Terms detailing how HMRC will approach settlement of certain remuneration trust schemes
HMRC have launched a new settlement opportunity for users of certain ‘remuneration trust’ or ‘creditor protection trust’ schemes which, in HMRC’s view, may contain a fundamental flaw. Whether scheme users can use the new settlement opportunity, and the terms available, depends on the facts of the case and the specific scheme used. Anyone who wishes to settle on the published terms must notify HMRC and provide calculations of the amount due under the terms of the settlement by 31 July 2022.
Who can use the new settlement opportunity?
This settlement opportunity is of relevance to employers where employment income has been provided through third parties, in this case using a particular type of trust, commonly known as a ‘remuneration trust’, the employment income being referred to as ‘Disguised Remuneration’. However, some versions of these schemes purported to reduce the user’s liability to tax on trading or investment income, and not solely employment income.
The new settlement opportunity is open only to remuneration trust schemes which, in HMRC’s view, contain a fundamental flaw in that that there is no valid transfer of funds to the scheme trust.
HMRC’s 2020 disguised remuneration settlement opportunity remains available to remuneration trust schemes that would qualify for its terms. In some cases, this may be a more advantageous opportunity on which to settle than the new remuneration trust settlement opportunity.
How did remuneration trust schemes operate?
A key feature of this type of remuneration trust scheme is that it involves trusts that are neither employee benefit trusts nor employer funded retirement benefit schemes. In addition, it involves contributions made by the scheme user (i.e. corporates, partnerships and self-employed individuals) being deducted in calculating their taxable profits.
The contribution is paid to a scheme administrator and after a deduction for scheme fees the contribution is transferred usually by way of loan, directly or indirectly to scheme beneficiaries being the shareholders, directors or partners of the scheme user or the self-employed individual scheme user.
A variation to the scheme involves the scheme administrator transferring contributions to a personal management company controlled by the scheme beneficiary and incorporated to facilitate the scheme.
In HMRC’s view, remuneration trust schemes do not work to deliver the ‘tax free’ environment they say they do.
What should remuneration trust scheme users consider?
Broadly, to apply for this settlement opportunity, scheme users must follow the settlement terms which include calculating the settlement under three possible options.
Users therefore need to choose an option and then submit the completed calculations to HMRC by 31 July 2022.
The published HMRC statement notes “The settlement terms are likely to result in a lower tax bill for scheme users than alternative outcomes that the courts might reach”.
This new settlement opportunity means that it is necessary to review existing arrangements relating to such remuneration trusts so that an informed decision can be made concerning the way forward, particularly where HMRC have open enquiries. It is therefore important to understand and seek tax advice as appropriate in relation to any such arrangements.
KPMG has extensive experience of assisting employers, end users and individuals in understand the tax planning arrangements entered into and the options available to them, including the negotiation of settlements with HMRC