Disguised remuneration refers to income received, usually by an individual from a company, via a tax scheme as a loan or some other non-taxable distribution of income which disguises the payment. If this scheme falls within the definition of a disguised remuneration scheme, an account of the tax liabilities on this income may have to be made to HMRC, up to 20 years later.
- it was not until the 1990’s that it became apparent that an increased number of tax avoidance arrangements were being entered into with a view to avoiding the payment of income tax.
- this became an increasing priority for government to focus on and the Tax Disclosure Regime initiated in 2003 via tax legislation and then the 2004 budget gave an opportunity for tax schemes to be disclosed to HMRC, with a view to exemptions from penalties and charges if individuals/companies were willing to come forward and disclose such arrangements in a similar manner to a gun amnesty.
- 2005 and 2009 tax legislation followed to deal with the expense deduction of such schemes against Corporation Tax and the Finance Act 2011 included a provision specifically targeting employee benefit trusts and some types of unregulated pension schemes.
- this was followed by the Lichtenstein disclosure scheme which enabled such taxes to be paid on the basis of disclosed schemes, on the basis that certain penalties would not be applied if they were willingly disclosed within this period. This has now closed but there remains the DOTAs procedure and the worldwide disclosure facility.
- following this, and in acknowledgement that government efforts to target schemes was having limited effect by reason of the moving nature of the schemes, by 2013 the General Anti-Abuse Rule (“GAAR”) was introduced in the Finance Act 2013 to make the application of tax avoidance legislation more purposeful rather than being targeted at individual schemes.
- this change was not retrospective and only initially applied to direct taxes although it did emphasise the need to focus on the intentions at the time when the arrangement was entered into, when determining whether any such arrangements were abusive.
- more importantly, the GAAR faced great difficulty in enforcement where targeted disguised remuneration rules already existed.
- more recently, the two Finance Acts 2017 have sought to target disguised remuneration schemes and introduce loan charges on loans operating through such disguised remuneration tax schemes.
At Francis Wilks & Jones we have considerable experience of the tax legislation and defending claims by HMRC against trading companies or liquidators appointed over companies where such claims by HMRC may exist and we can assist with any negotiations with HMRC, appeals to tax tribunals or insolvency claims.
Please call any member of our tax disputes team for your expert consultation now. Alternatively email us with your enquiry and we can assist. It is always sensible to take expert legal advice to make sure you don’t inadvertently breach the legislation.