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New spotlight on disguised remuneration

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On 29 September 2017, HMRC published Spotlight 41 ‘Disguised remuneration: a Supreme Court decision’, expanding its list of tax avoidance schemes that HMRC believes are being used to avoid paying tax due.
This follows the decision of the Supreme Court in the long-running Rangers case (RFC 2012 Plc (in liquidation) (formerly The Rangers Football Club Plc) v Advocate General for Scotland [2017] UKSC 45), which was released on 5 July 2017 (reviewed in Tax Journal, 14 July 2017).
The Supreme Court unanimously dismissed RFC’s appeal. HMRC’s view was that there had been a payment of earnings to the relevant footballers and executives, and the Supreme Court agreed with this analysis. Accordingly, the football club should have deducted income tax and NICs from the sums paid to the employee benefit trust (EBT) arrangements.
A key principle in the judgment was that, as a general rule, the charge to tax on income extends to money that the employee is entitled to have paid as remuneration, irrespective of whether it is paid to the employee or to a third party.
Shortly after the decision, HMRC indicated that it would be inviting participants in such schemes to register an interest in settling their tax liabilities arising from the use of the arrangements. 
HMRC has now provided further details in Spotlight 41. The spotlight confirms that HMRC’s view is that: 
  • employment income paid from an employer to a third party is still taxable as employment income; and 
  • the principle applies to a wide range of disguised remuneration tax avoidance schemes, no matter what type of third party is used. 
Unsurprisingly, HMRC is relying on the judgment to cast its net wider than EBT arrangements such as those used in the Rangers case. The spotlight specifically mentions that HMRC will pursue disguised remuneration routed through employer-funded retirement benefit trusts (EFURBs) and a range of contractor loan schemes. HMRC notes that the facts of each case will determine where the earnings point arises based on decided case law.
What do you need to do?
The spotlight makes it clear that HMRC intends to take action against a wide range of disguised remuneration schemes ‘using the full range of our available tools’ (including, in some cases, issuing follower notices and accelerated payment notices). HMRC has also indicated that it will accelerate litigation where users continue to challenge HMRC on their scheme.
Given the extended period of time over which the Rangers case has been going through the courts and the high profile of the case, it will come as no surprise to companies and advisers involved in avoidance schemes using EBTs that HMRC is taking further action. In many cases, such companies will already be in settlement discussions with HMRC.
Companies which have implemented EFURBs and contractor loan arrangements should also be looking closely at these arrangements with their advisers, to consider to what extent they may be challenged as disguised remuneration schemes. HMRC strongly advises users to withdraw such schemes and settle their tax affairs, to avoid the costs of legal action and minimise interest and penalty charges.
More widely, advisers involved in corporate transactions should be considering whether the target company is or has been involved in such disguised remuneration schemes. Due diligence should be carried out to understand the nature of (and risks associated with) any arrangements which may be caught by Spotlight 41, and the action which is to be taken with HMRC. Specific warranty and indemnity cover may be required, and potentially retention from the consideration or escrow arrangements agreed pending negotiation of a settlement with HMRC. 
Michael Carter ( & Mairi Granville-George (, Osborne Clarke
Issue: 1372
Categories: In brief