Spotlight 51 Notice
For some years, HM Revenue and Customs (HMRC) have published ‘Spotlights’, a list of information about tax avoidance arrangements that have come to their attention. Many of the spotlight schemes are complex and convoluted. In normal circumstances, few taxpayers would become involved in using them unless they had aggressive tax avoidance in mind.
The Spotlight 51 notice from HMRC focuses on the scheme, which the tax authority says is used to provide remuneration or profits free of tax and is different to the loan scheme used by contractors paid through trusts or other umbrella companies. This scheme is marketed at self-employed individuals, partnership partners, and a company or a company director. The user contributes to a remuneration trust, with trustees based offshore. This scheme claims to provide remuneration or profits free of tax and is different to the scheme used by contractors referred to in Spotlight 33.
- How does the Scheme claim to work?
The remuneration trust is set up in a contrived manner and is claimed to provide benefits to individuals (beneficiaries), other than the scheme user. The alleged beneficiaries are individuals employed in the trade or profession of lending money. The trustees take no action to identify or reward the alleged beneficiaries, because the trust contributions are always intended to be used by the scheme user. As part of the scheme arrangements a personal management company is set up and controlled either by the scheme user or connected party supporting the scheme. The money contributed to the remuneration trust is actually paid – often minus the 10% scheme fee – to the personal management company.
This allows the scheme user full access to the funds. The scheme user accesses the contribution to the remuneration trust through unsecured loans or fiduciary receipts from the personal management company. It is claimed to be tax free and on terms not available from high street lenders. Interest and capital repayments on the loans are rarely made. The receipts from the personal management company are often used by scheme users as living expenses. In some cases, the scheme user decides how the money is invested by the personal management company.
- What happens if you use the scheme?
HMRC’s view is that the claims made by scheme promoters about the tax savings are not credible or genuine. If an individual is using this scheme, they may find that the Corporation Tax, PAYE tax, National Insurance contributions and Inheritance Tax are all chargeable for company and company director users deductions claimed by self-employed individuals and partnerships are not allowable expenses, and Inheritance Tax is chargeable. They would also be charged with interest on any tax paid after the statutory due date and may face penalty charges.
- What to do if you are using this scheme?
HMRC strongly advises you to withdraw from it and settle your tax affairs. HMRC’s strong view is that this and similar schemes do not work and will challenge the promoters and users of this scheme. HMRC’s view is that the claims made by scheme promoters about the tax savings are not credible or genuine. HMRC strongly advises to withdraw from such schemes and settle the tax affairs. HMRC states that it would avoid the costs of investigation and litigation and minimise interest and, where they apply, penalty charges on the tax that should have paid.
If you are already speaking to someone in HMRC about using an avoidance scheme, HMRC advise that you should contact them. If you do not have a contact and you are in a tax avoidance scheme and want to get out you can contact firstname.lastname@example.org or WhatsApp us on 07583452230 or visit www.bizlawuk.co.uk to find out more about how we can help you.