Disguised remuneration: tax avoidance by selling future business revenues to a revenue service trust (Spotlight 57)
Find information on a tax avoidance arrangement used to avoid tax and National Insurance contributions by selling future business revenues to a trust.
HMRC is aware of an arrangement where a business may enter into an agreement with a trust and claim to have sold the rights to its future revenue to the trust. The revenue is not included in the business’s accounts (meaning no tax is paid on it) and the transfer of funds to the trust is not disclosed to HMRC.
Users of this and similar arrangements may find they need to pay considerable fees, yet still have to pay tax, interest and possibly a penalty on any tax that’s claimed to be avoided.
HMRC strongly believes these arrangements do not work. We’ll challenge anyone promoting such arrangements and investigate the tax affairs of all users.
How the arrangement is claimed to work
The business enters into an agreement with a revenue service trust, with offshore-based trustees. The business could be a:
- self-employed individual
- partner in a partnership
- company
- company director
Under the agreement, the trust becomes entitled to a percentage of the business’s future revenue, which the business will pay to the revenue service trust. It’s claimed that the business does not have to disclose the transfer of funds in their accounts.
As the business no longer holds this revenue, it’s not included as part of the business’s taxable profit and so, no tax is paid on it.
After the revenue has been transferred, the trust will take one of two routes (minus a fee retained by the trust for the promoter of the arrangement). They will either:
- transfer the revenue to a personal management company controlled by the business owner, who can then invest or draw on the transferred amounts
- send the revenue directly from the trust to the business owner, where the funds will be labelled as ‘loans’, ‘fiduciary receipts’ or something else so that no tax is paid on them
Why you should not use these arrangements
HMRC’s view is that this and similar arrangements do not work. If you’re using these arrangements, you’ll be challenged by HMRC and it could result in:
- the following charges for company and company director users:
- Corporation Tax or other company tax charges
- Income Tax
- National Insurance contributions
- Inheritance Tax
- anti-avoidance legislation causing a tax liability to occur on the shareholders of the company
- the following charges for self-employed individuals and partners in partnerships:
- Income Tax
- National Insurance contributions
- Inheritance Tax
- the trust being liable to tax on the income
- interest being charged on any tax paid after the statutory due date and penalty charges may occur
Deliberately misleading, or concealing information from HMRC may result in criminal prosecution.
Find out more about tax avoidance so you don’t get caught out. HMRC is here to help you spot the warning signs.
What this means for promoters
HMRC will pursue anyone who promotes or enables this arrangement.
This includes using the Enablers Penalty Regime for anyone who designs, sells or enables the use of abusive tax avoidance arrangements, which are later defeated by HMRC.
This penalty applies where any of these arrangements have been enabled and entered into on or after 16 November 2017.
HMRC will also use its powers under the Promoters of Tax Avoidance Schemes regime against those who persist with promoting tax avoidance schemes.
What to do if you’re using this or similar arrangements
We want to help people steer clear of tax avoidance by asking them to stop, challenge and protect themselves, and others.
If you are worried about becoming involved in a tax avoidance scheme, or think you are already involved and want to get out of one, HMRC is here to help. We offer a wide range of support to get you back on track or avoid being caught out in the first place.
Anyone concerned about the schemes they are currently using should consider getting independent professional tax advice or speak to one of the tax charities. Anyone with concerns can also Contact HMRC.
If you’re using this or similar schemes or arrangements, HMRC strongly advises you to withdraw from it and settle your tax affairs to prevent building up a large tax bill.
If you’re facing difficulty in making a tax payment you should ask us about affordable monthly payment options. We’ll always try to work with you to negotiate time to pay based on your income and expenditure.
Time to pay arrangements are based on an individual’s specific financial circumstances, so there is no ‘standard’ time to pay arrangement. We look at what you can afford to pay and then use that to work out how much time you need to pay and over what time period.
By withdrawing from the arrangements and settling your tax affairs, you’ll:
- avoid the costs of investigation and litigation
- minimise interest and penalty charges (where they apply) on tax you should have paid
HMRC is considering whether the General Anti-Abuse Rule (GAAR) may apply to this arrangement. Where the GAAR applies, transactions made after 14 September 2016 may be subject to a 60% GAAR penalty.
You may also be charged a penalty for submitting an inaccurate tax return to HMRC. This applies if the tax return is sent on or after 16 November 2017 and relates to a tax period that both:
- began on or after 6 April 2017
- ended after 15 November 2017
You’ll be charged a penalty because of carelessness, unless you can show us you took reasonable care.
If you’re already speaking to someone in HMRC about using an avoidance scheme, you should contact them to discuss this further.
If you do not have a HMRC contact and you want to get out of this or similar arrangements, email ca.c14.admin@hmrc.gov.uk.
Get more information or report a scheme
Find out more about how to identify tax avoidance schemes.
You can report tax avoidance arrangements, schemes and the person offering you the scheme to HMRC.
Last updated 26 May 2022 + show all updates
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In the section 'Get more information or report a scheme', the way to report tax avoidance arrangements and schemes has been updated.
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First published.