Employee bonuses: tax avoidance scheme involving Restricted Securities (Spotlight 23)
Published 27 December 2013
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HM Revenue and Customs (HMRC) won another case at tribunal involving an attempt to avoid tax and National Insurance contributions on employee bonuses.
In LM Ferro Ltd v HMRC a bonus was paid in the form of an award of shares. The judge’s decision confirmed the view of HMRC, that these types of tactics to avoid tax simply do not work. If you pay what is really a bonus, tax and National Insurance contributions are due no matter how it is dressed it up.
The scheme in LM Ferro was marketed by Powrie Appleby but similar avoidance schemes were marketed by other promoters too.
HMRC considers cash awards received by beneficiaries in those schemes to be chargeable to Income Tax and National Insurance contributions.
HMRC expects those who used these schemes to make full payment of the tax and National Insurance contributions due, plus interest. Those companies and employees affected should contact HMRC to settle their liabilities and prevent additional interest accruing.
Penalties may be charged if you failed to take reasonable care when making returns to HMRC.
Read decisions in other recent cases where attempts to avoid tax on bonuses failed from the links below:
HMRC v PA Holdings Limited [2011] EWCA Civ 1414
Tower Radio Ltd, Total Property Support Services Ltd v HMRC (2013) UKFTT (387) (TC)