HMRC has published an opinion of the GAAR advisory panel which found that a scheme to extract value from a personal service company for its individual director was not a reasonable course of action. In essence, the company made contributions to a trust and took a deduction from its trading profits in respect of those contributions. The trust made unsecured loans to the individual which were not due for repayment for at least ten years. The result was that the company sought to deduct £150,000 in contributions to the trust, and the individual received £124,500 in loans which he claimed were tax free.
The GAAR panel considered that ‘the arrangements as a whole are contrived and abnormal and appear to us to serve no purpose other than to avoid tax. Had it not been desired to obtain a tax deduction for the company without any tax on the funds received by the Individual much simpler means of extracting value could have been adopted. The company could, for example, have continued to pay dividends. Alternatively, if the company wanted to adopt a solution which gave it a tax deduction, it could have paid a salary or bonus’.
HMRC has also highlighted repeated warnings about the use of disguised remuneration schemes, particularly where arrangements are deployed to attempt to replace income with loans. HMRC outlines potential counteractions that are likely to be taken against users of such schemes, and actions under the promoters of tax avoidance schemes powers and the penalties for enablers regime.
HMRC has published an opinion of the GAAR advisory panel which found that a scheme to extract value from a personal service company for its individual director was not a reasonable course of action. In essence, the company made contributions to a trust and took a deduction from its trading profits in respect of those contributions. The trust made unsecured loans to the individual which were not due for repayment for at least ten years. The result was that the company sought to deduct £150,000 in contributions to the trust, and the individual received £124,500 in loans which he claimed were tax free.
The GAAR panel considered that ‘the arrangements as a whole are contrived and abnormal and appear to us to serve no purpose other than to avoid tax. Had it not been desired to obtain a tax deduction for the company without any tax on the funds received by the Individual much simpler means of extracting value could have been adopted. The company could, for example, have continued to pay dividends. Alternatively, if the company wanted to adopt a solution which gave it a tax deduction, it could have paid a salary or bonus’.
HMRC has also highlighted repeated warnings about the use of disguised remuneration schemes, particularly where arrangements are deployed to attempt to replace income with loans. HMRC outlines potential counteractions that are likely to be taken against users of such schemes, and actions under the promoters of tax avoidance schemes powers and the penalties for enablers regime.
