The cases, against Hyrax Resourcing and Curzon Capital, used loan payments to disguise income that should have brought tax and National Insurance contributions.
In both cases, the FTT agreed with HMRC that the disguised remuneration arrangements were notifiable under the Disclosure of Tax Avoidance Schemes (DOTAS) legislation.
The scheme rewarded users with amounts paid as loans, which were ultimately owed to an offshore benefit trust. However, in practice, these are rarely repaid.
In the Hyrax case, the FTT stated: “There is no other rational reason for why anyone would implement a convoluted and expensive set of arrangements which left them with a legal (if economically unreal) obligation to repay a sum that they would otherwise have received as salary, save for the expected tax advantage. Objectively speaking, the main benefit that might be expected to arise from the arrangements would be the tax advantage.”
Likewise, in the Curzon case, the FTT stated: “There were no corresponding non-tax benefits against which that saving should be weighed.
“It was self-evidently the case that the tax saving was the main benefit that might be expected to arise from the arrangements.”
HMRC has released the guidance Disclosure of Tax Avoidance Schemes: tax avoidance using offshore trusts (Spotlight 52) on these cases. It makes clear that these types of contrived arrangements are notifiable under DOTAS and that HMRC will pursue anyone who enables tax avoidance.
“These decisions confirm HMRC’s view that contrived arrangements involving employment income related loans are notifiable under DOTAS,” states the guidance.
“HMRC will pursue anyone who promotes or enables tax avoidance.
“Scheme promoters should carefully consider the DOTAS rules to decide if the arrangements they are marketing should be declared to HMRC.
“HMRC will closely examine whether DOTAS should apply to individual cases.”
The guidance strongly advises those using these or similar arrangements to withdraw from them and to settle their tax affairs.
