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An offshore tax avoidance scheme used by an FTSE 100-listed investment management company to pay its employees tax-free bonuses has been closed by Scotland’s most senior court.
Aberdeen Asset Management paid senior employees and directors over £31 million free of income tax and National Insurance Contributions (NICs) between 2000 and 2003 using an Employee Benefit Trust (EBT).
The Scottish Court of Session last week backed HM Revenue and Customs’ (HMRC) argument that Pay As You Earn (PAYE) and NICs should be paid on the bonuses, which were converted into shares under the complex scheme. The PAYE and NICs at stake in the case totalled £7 million.
This is the latest in a series of court rulings against businesses that have tried to avoid PAYE and NICs using schemes involving EBTs. The scheme used by Aberdeen Asset Management was outlawed in 2003.
The Exchequer Secretary to the Treasury, David Gauke, said:
The Government has made almost £1 billion available to HMRC to tackle avoidance and evasion and to ensure that the minority who try to avoid their responsibilities pay the tax due.
This scheme, like so many others, was a waste of time and money. The tribunal decision sends a clear message to anyone who is tempted to use avoidance schemes: HMRC will pursue you and you’re likely to end up having to pay the tax due, interest and the promoter’s fees as well.
Jim Harra, Director General, Business Tax, HMRC, said:
This decision will be a big help when we come to argue other cases that are currently in the courts.
We hope this success will encourage more companies to cut their losses and come forward to settle their EBT liabilities on the basis that this kind of avoidance scheme does not work.