Guidance

Disguised remuneration trust schemes: misleading advertising (Spotlight 40)

Advertising Standards Authority rules against misleading income trust advertising that uses HMRC's logo.

HM Revenue and Customs (HMRC) complained to the Advertising Standards Authority (ASA) about misleading advertising by an avoidance scheme seller Knight Wolffe.

The scheme is known as the Knight Wolffe income trust, a type of disguised remuneration scheme, it aims to divert income from a business into a trust. The trust then loans it back to the business owners, their families, or both, claiming that no Income Tax or National Insurance Contributions (NICs) arise.

The ASA ruling

The Advertising Standards Authority has ruled that all of these claims and use of HMRC’s logo are misleading and must be withdrawn.

The ASA has also ruled that the website “misleads by omission”, by failing to mention the various government tools and policies aimed at the avoidance promoted by Knight Wolffe. This includes the General Anti-Abuse Rule (GAAR) and the new charge on disguised remuneration outstanding on 5 April 2019 (the loan charge).

The ruling shown on the ASA website sets a precedent so other avoidance sellers must not make the same claims about similar schemes.

Knight Wolffe and other sellers of similar planning arrangement must now remove these claims from their advertising. See sanctions available to the ASA where advertisers fail to comply with its rulings.

How income trust schemes are claimed to work

The avoidance seller’s claims

Knight Wolffe’s website claims the scheme:

  • was ‘known and accepted by HMRC since 1994’
  • was ‘approved by the House of Lords in 2005’
  • ‘involves no tax avoidance’
  • remains effective in a number of ways - including alongside HMRC’s logo

HMRC view

HMRC’s understanding of the income trust scheme is that the:

  • business establishes a trust for the benefit of its suppliers
  • business pays money into the trust
  • money paid in is claimed as a tax deductible business expense
  • claimed purpose of the trust is to provide an incentive to suppliers

In reality, the suppliers aren’t aware they’ve become beneficiaries of the trust. The trust funds are then loaned, usually to the business owner, their family, or both. The terms of the loan mean the funds are unlikely to be repaid.

Eventually the loans are claimed to reduce the scheme user’s estate value for Inheritance Tax purposes. As a result, the scheme user has full use of the money, which appears to be tax-free.

What to do if you’re using an income trust scheme

If you’re using this type of income trust avoidance scheme, you should contact HMRC to make arrangements to pay the tax and NICs due as soon as possible.

Published 13 September 2017
Last updated 25 October 2017 + show all updates
  1. Changes made to highlight that the Knight Wolffe income trust scheme is a type of disguised remuneration.
  2. First published.