In the 2016 Budget presented on 16 March, George Osborne confirmed measures to take immediate action against “gold bullion” and similar remuneration schemes, as indicated in the previous Autumn Statement. This is now highlighted in HMRC’s Spotlight 30 guidance recently published on 6 May 2016:
HMRC’s interest in the use of gold bullion as an ‘avoidance’ investment is neither new nor a passing fancy. Over the years there have been a number of cases in which they seek to enforce the ineffectiveness of some of these schemes. Norman Wisdom made the headlines back in 1968 when his investment in silver bullion landed him with a rather large income tax liability.
The Budget 2016 saw a number of changes designed to further tackle anti-avoidance, including a crackdown on the use of the ‘disguised remuneration packages’ historically used to reduce the amount of Income Tax and NICs paid by employers and employees.
These schemes, in their most basic form, generally involved an employer paying a third party (often an Employee Benefit Trust) who would then provide the money to the employee in the form of an interest-free ‘loan’, with terms effectively dictating no repayment was due during the employees lifetime.
Some promoters and employers attempt to be more thorough in their attempt to ‘disguise’ remuneration, though the fact that cases increasingly lose in court is probably an argument that their efforts are in vain. EDI Services Ltd v HMRC (2006) saw directors bonuses paid in gold Napoleon coins to take advantage of the NIC exemption for ‘payments in kind’. However, the arrangement with the gold bullion dealer to buy back the coins from the directors is arguably an indication that it was designed as a ‘mechanism to deliver cash’ with no commercial purpose other than to avoid the payment of NICs. HMRC successfully challenged this arrangement.
Following the “Employment Income Provided Through Third Parties” (commonly referred to as “Disguised Remuneration”) anti avoidance legislation introduced by Finance Act 2011, planning became more convoluted. Schemes were structured so individuals would receive both an asset (such as gold bullion) and an obligation (say to contribute to a Trust) resulting in a theory that no tax liability would arise. However, HMRC consider that in reality a cash payment is made (since assets are usually certainly readily convertible) and the future obligation would never be fulfilled therefore the reward is taxable as earnings in their view.
In all cases it seems reasonable to assume that if amounts pass what is often referred to as the duck test (it looks like a duck, walks like a duck and quacks like a duck then it is reasonable to assume that it is a duck) in that they look like remuneration and feel like remuneration, but without the tax consequences of its being taxed as remuneration, it is likely to be regarded by HMRC as tax avoidance.
The government are concerned about the continued use of avoidance schemes and the number of employers who have as yet failed to settle. George Osborne confirmed that the government firmly believe these schemes do not achieve what they say they do and outlined their intention to further amend legislation to remove any currently exploited ‘loophole’ or gaps between Part 7A ITEPA 2003 and the s455 CTA 2010 “loans to participator” anti avoidance legislation. This package of Targeted Anti avoidance Rules (TAAR’s) will mean such schemes will become far less attractive and even less likely to succeed.
HMRC will continue to investigate tax returns where such schemes have been used and seek full settlement of tax and NIC due, plus interest and penalties (where appropriate). Previous settlement opportunities have included the Employee Benefit Settlement Opportunity (EBTSO), Employer Financed Retirement Benefit Scheme (EFRBS) Resolution Opportunity, and the Contractor Loan Settlement Opportunity (CLSO) which all closed at the end of 2015 after collecting approximately £1.5bn in unpaid tax. No settlement opportunity has been announced or is expected.
Several years ago, across the pond, Las Vegas businessman Robert Kahre was convicted for a total of 15 years (of a possible 296) in a federal prison and faced fines of up to $14m for paying his employees in gold coin. The government have announced their intention to prosecute serial evaders and scheme promoters, so the risk of prosecution is far greater than ever before.
There will be a technical consultation over the summer of 2016 ahead of further legislative changes to bring beyond doubt that these schemes will not be effective. The government have made it clear that they will take retrospective action backdated to 25 November 2015. The government have further announced that all loans, debts or obligations arising from disguised remuneration schemes will be taxed as earnings if still outstanding at 5 April 2019. Both promoters and users of these schemes should act now to limit their risks.