HMRC seeking to close tax avoidance loopholes

The Financial Times has reported how a crackdown on big companies seen to be abusing employee benefits trusts (EBT) for tax avoidance purposes is starting to pay off, with HM Revenue & Customs (HMRC) more than doubling its takings from investigations into payroll tax avoidance last year.

A change in legislation in 2011 meant companies were under pressure to disassemble structures that put money into trust for employees and family members. These EBT structures enabled employees to postpone – and in some cases even avoid completely - paying tax while still benefiting from cash-bought property or loans. Some companies set up offshore trusts for their top earners through which they paid salaries and bonuses.

Banks and other businesses who used these structures came under attack from HMRC – with 770 companies in the large business sector facing a compliance bill of £533m in the year to April 2013 (an increase of 160%).

The FT cited the HMRC as saying: "We will not allow the abuse of employee benefits trusts for tax avoidance purposes. The government has made almost £1bn available to HMRC to police the tax rules and we have specialist inspectors making sure any past abuse of EBTs is effectively challenged and the tax paid."

In November 2013, the HMRC, commenting on employer-financed retirement benefits schemes, (where trusts enabling directors or shareholders to extract tax as efficiently as possible) said it strongly believed “that schemes such as this do not work as intended”.

This suggests that the crackdown on tax avoidance on loopholes could increase, with the aim of bringing in even more revenue in 2014.

If you are concerned that you are not paying the correct amount of tax, then please get in touch. We can help you develop a tax strategy that ensures you remain compliant and fulfil all your tax obligations, and don’t fall foul of the existing, and proposed, legislation.

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Shams Urrehman
MD SkyTax

Hi, I'm Shams Urrehman, Qualified accountant since 2005 and Director at SkyTax Ltd since 2009. I have been advising freelancers, management consultancies, IT contractors, SME’s and other businesses about accounts and tax planning.

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