Remuneration Trusts – What is the point paying taxes or settling with HMRC if an officer abuses their position?

Steve ignored the legislation that provides a framework for HMRC to make and settle enquiries. What is worse, Steve tried to leverage higher taxes by threatening a higher penalty if the taxpayer did not accept voluntarily restitution.  Steve also ignored the legislation setting out how penalties are calculated.

Was the officer abusing their position? Apparently, the officer referred the case to his senior officer, sought technical advice and is following HMRC policy. If that is true, HMRC must set policy outside a legal framework. One might feel they adopt their approach based on their employer’s representatives – after all, politicians often don’t follow the rules they set, do they?

The case handled by Steve relates to a taxpayer who came forward to settle in relation to contributions to a remuneration trust (‘RT’). The client approached us at the beginning of 2023 and a disclosure was prepared and submitted by summer. HMRC had opened enquiries into most years contributions were made to the RT save two. Those two years which were not opened were 2011 and 2014 – HMRC did open enquiries the years in between and after.

Remuneration Trusts – These schemes claim that by making contributions to a remuneration trust, users can get a range of tax advantages.

Lewis is the case worker on another remuneration trust case. Again we were instructed at the beginning of 2023 and a full disclosure report was submitted just after Easter. Lewis corresponded directly with the client and did not send his proposed settlement letter to us as acting agent. The client forwarded the proposed settlement, which included penalties for deliberate behaviour. The rationale is that when the client submitted his return, he must have known the remuneration trust was not for commercial purposes because the client had received loans from it.

Steve also commented on the potential for deliberate behaviour and stated “This would be based on the behaviours of a person’s acting on your client’s behalf (namely the promoter and/or introducer of the scheme) and the behaviours of you (your) client”. What I assume Steve is contending is that there is merit in both the promoter, introducer, agent and taxpayer were all aware and knowingly submitted an inaccurate document or even falsified a document.

The ‘promoters’ and the orchestrator of the remuneration trust issued regular news.  The releases informed users of HMRC incompetence and how the Marlborough and Dukeries cases were a huge win for users of the remuneration trust.  I am not sure how it could be contended that standing in the shoes of the taxpayer, that they acted deliberately.

The orchestrator of the remuneration trust may have a point about competence. The remuneration trust arrangements began before the Sempra and Dextra cases. The arrangements have existed and been promoted for two decades. It is only in the past twenty four months that HMRC had some success in combatting the arrangements. This may be due to the difficult approach adopted by the orchestrator who prepared responses to HMRC’s enquiries. More likely, the lack of speed to tackle tax irregularities is HMRC’s inefficiency.

The lack of efficiency may be demonstrated by considering legislation that introduced accelerated payment notices (‘APNs’) and the loan charge. The legislation was hailed as a measure to deter and combat the use of avoidance schemes and, in part, that did happen. However, having dealt with hundreds of APNs, not one has been correctly issued. As such representations may be made and the result is the deferment of the payment.

Inevitably the APN is re-issued or representations are refuted meaning a costly exercise to challenge further. The loan charge was then subject to review by Sir Amyas Morse and by the time it was introduced, loopholes had allowed many ‘loans’ to disappear. The magic art of a loan disappearing came at another professional cost and carried the reassurance from a promoter of another ‘avoidance scheme’. 

The remuneration trust (or the RT’s personal management company – ‘PMC’) stopped making loans and instead replaced the ‘Loan’ with a ‘fiduciary receipt’. Standing in the shoes of a user of an remuneration trust, they were ‘sold’ a solution that carried the confidence of two decades of HMRC failing to close down the remuneration trust arrangements. Unless the user were a Chartered Tax Adviser or a Tax barrister, it is unlikely they acted ‘deliberately’. 

Yet here we are, twenty years in the coming and we arrive at taxpayers who want to settle their affairs. They want to embrace HMRC and regularise their affairs. They have spoken at length with a tax adviser who has set out the reasons why the planning doesn’t work or how it will be attacked. They have been advised that HMRC don’t appear to be letting users of avoidance schemes get away and will likely introduce even more penal measure if they don’t get settlements.

HMRC has received a beautifully prepared report, setting out the personal motivation, history of how the planning was promoted, detailed calculations and supporting primary evidence. All that is needed is a letter of offer and agreement on tax, interest and penalties. It should be so easy at this point for HMRC to conclude a disclosure but no, an officer raises arguments. To reflect, those arguments were:

1. You must settle years that are closed or we will allege deliberate behaviour so we can open those years and tax them anyway and charge a higher penalty. This is without consideration to the legislation, the fact that non-deliberate behaviour has already been accepted for the other years and other taxpayers with identical circumstances have settled on that basis. The treatment must be a breach of fairness to taxpayers which is at the heart of the so called taxpayer’s charter.
2. You must pay higher penalties because you must have known the arrangements weren’t fulfilling the intended commercial purpose by making loans to you despite every adviser telling you it was OK and I am not going to step into your shoes to understand what your position is.

Maybe the avoidance of tax is understandable. After all, if HMRC can flex the rules and try and get away with something, a taxpayer should be able to also!

How do you deal with HMRC pushing the boundaries? It may be an information request that is clearly wrong or requests speculative comment. It may be a penalty calculation that doesn’t refer to why a behaviour is deliberate or refusing a settlement unless you include years outside the legal parameters.

First you have to point out the error of the officer’s way. No doubt this will be problematic because some HMRC officers are in fact a ‘tax policeman’, they are the law and they will know better than you. You could ask them to take your comments to their senior officer. The likelihood will be another push back either because the officer hasn’t taken it to their senior officer or because the senior officer thinks you will give in if they push back. What next?

Maybe a formal complaint although sometimes necessary, it upsets the officer. Another option may be to write your own letter of offer to the Board, which might force more independent consideration. If no success, let HMRC assess, appeal assessments and go to the tribunal and seek costs.

The problem with any approach is the taxpayer, who has faced professional costs with the planning, professional costs making the disclosure will be more professional costs. HMRC should be able to do something to be more efficient and more consistent. It is suspected that anything introduced will be as successful as the measure introduced to deal with avoidance schemes. Maybe, the decision on a settlement offer should be that of an independent body (happy to set one up) that reviews the case for the taxpayer and that put forward by HMRC.

They provide a guidance ruling, which if a party doesn’t agree with, they know it is likely a Tribunal would also go against. Another alternative is to outsource the function of HMRC to the professional services industry (again we are available) – it would be more commercially driven to get cases closed and settled. The timeframe to close enquiries would likely reduce and settlements would likely be more consistent. There may be a data protection issue so an alternative is that a taxpayer could elect to have a professional service firm (maybe from a select panel) to act for HMRC.

These ideas may have merit. Alternatively, see you at the Tribunal.

If you’re using a remuneration trust or similar schemes or arrangements, HMRC strongly advises you to withdraw from it and settle your tax affairs. Please contact the team if you have any concerns

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Don’t forget to read another article by Anton Lane on remuneration trusts here

This article was written by Anton Lane