Taxing the rewards for work carried for a UK based employer (Spotlight 12)
Published 6 November 2012
© Crown copyright 2012
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HM Revenue and Customs (HMRC) is aware of new tax avoidance schemes that seek to avoid Income Tax and National Insurance contributions. Such schemes are being advertised to:
- contractors
- highly paid employees
- people using recruitment agencies
It is claimed by those who advertise, that these schemes get around new disguised remuneration rules.
Arrangements may involve payments passing through a series of either:
- companies
- loans from a third party
- an offshore alleged employer
- an offshore alleged employer
- a deed of covenant
- secondments from one employer company to another
- claims of self employment
In the opinion of HMRC, these arrangements do not succeed in avoiding the tax and National Insurance contributions due.
HMRC will challenge such arrangements and litigate where necessary to recover unpaid tax and National Insurance contributions.
Current legislation ensures that rewards and recognition received from working for UK-based businesses are charged appropriately to UK Income Tax and National Insurance contributions.
This legislation applies whether the rewards are routed through:
- employee benefit trusts
- employer funded retirement benefit schemes
It also applies if rewards are routed through any other intermediaries, either as:
- loans
- transfers of assets
- other payments
The legislation will also apply to such third party arrangements where an employment is disguised as self-employment or a contractual arrangement.
Those intent on avoiding Income Tax and National Insurance contributions by using trust arrangements should also be aware. This is because there could be adverse Inheritance Tax and Trust taxation consequences, regardless of whether they set up the trust themselves.
Possible consequences include Inheritance Tax charges:
- when contributions are made to the trust
- when funds are transferred from a trust to a sub-trust
- when funds are removed from the sub-trust
- when non-commercial loans are made by the trustees
- at the ten year anniversary of the trust.