The GAAR advisory panel has given an opinion on arrangements which sought to reward the shareholder and sole director of a company (Mr A) by creating additional pension rights.
In essence, the arrangements involved three stages: firstly, the company decided to make a pension benefit available to Mr A; secondly, independent advice was taken on how to provide the pension; and thirdly, the pension obligation was transferred to a third-party who also happened to be Mr A’s wife. She took on the pension liability in exchange for receiving an amount equivalent to the current value of the pension obligation. In the event, that payment was instead made as a credit to Mr A’s overdrawn director’s loan account.
The company claimed a corporation tax deduction for the amount used in discharge of the overdrawn director’s loan account on the basis that the amount was made for pension provision. It also argued that the amount that had in effect passed to Mr A was outside the scope of income tax and national insurance.
The GAAR advisory panel found that the arrangements involved ‘contrived or abnormal steps’ – particularly in the way the series of steps had led to the amount being credited to Mr A’s director’s loan account and noting: ‘In our view, the taxpayers have devised a contrived way of seeking to circumvent the disguised remuneration rules, the loans to participator rules and rules in sections 1290–1292 Corporation Tax Act 2009.’
The GAAR advisory panel has given an opinion on arrangements which sought to reward the shareholder and sole director of a company (Mr A) by creating additional pension rights.
In essence, the arrangements involved three stages: firstly, the company decided to make a pension benefit available to Mr A; secondly, independent advice was taken on how to provide the pension; and thirdly, the pension obligation was transferred to a third-party who also happened to be Mr A’s wife. She took on the pension liability in exchange for receiving an amount equivalent to the current value of the pension obligation. In the event, that payment was instead made as a credit to Mr A’s overdrawn director’s loan account.
The company claimed a corporation tax deduction for the amount used in discharge of the overdrawn director’s loan account on the basis that the amount was made for pension provision. It also argued that the amount that had in effect passed to Mr A was outside the scope of income tax and national insurance.
The GAAR advisory panel found that the arrangements involved ‘contrived or abnormal steps’ – particularly in the way the series of steps had led to the amount being credited to Mr A’s director’s loan account and noting: ‘In our view, the taxpayers have devised a contrived way of seeking to circumvent the disguised remuneration rules, the loans to participator rules and rules in sections 1290–1292 Corporation Tax Act 2009.’
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