Noel Mooney

Written by: Noel Mooney

Noel Mooney

Associate Director

HMRC announces a one-off settlement opportunity but with a twist…

On 11 April 2022, HMRC unexpectedly announced a new settlement opportunity for those who have been involved in remuneration trust tax schemes. It provides a limited window to settle historic tax liabilities on potentially beneficial terms, but individuals and companies will need to act fast as the closing date for applications is 31 July 2022.

Upon reviewing the unique settlement terms offered under this new opportunity, it appears they have been carefully crafted by HMRC to address a conflict created by two competing First-tier Tribunal decisions handed down in recent months. Each case considered the tax treatment of loans made in remuneration trust planning cases but reached two different decisions:

  • Marlborough DP Limited v HMRC concluded that the loans were neither earnings from employment income nor disguised remuneration and should be taxed as distributions.
  • Strategic Branding Limited v HMRC concluded that the loans were taxable as employment income under the disguised remuneration legislation at Part 7A ITEPA 2003.

The new settlement terms seek to bridge these differing decisions, by uniquely allowing the option to elect for the loans to be taxed as either employment or dividend income, provided certain conditions are met. While HMRC has yet to announce the mechanics of the settlement process, the inference is that in keeping with previous opportunities, the onus will be on the company to settle with HMRC and seek recompense from the individuals who benefitted from the loans, or for those individuals to incur a further tax charge.

Where taxpayers choose not to take up this opportunity, HMRC reserves its right to pursue the argument that the disguised remuneration legislation should be applied, resulting in the application of the loan charge. In most instances this would not be the most beneficial method and serves as a strong incentive for employers and/or loan recipients to settle.

With a diminishing window of opportunity and potentially significant tax involved, it is important that taxpayers that have taken part in remuneration trust planning schemes act without undue delay and contact their tax adviser to discuss the settlement terms on offer.

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