The Failed Brilliance of Remuneration Trusts and the Costs of Misplaced Genius

Tax Schemes – Remuneration Trust Too Good to Be True

The marketing material was oddly cheap looking and didn’t convey a feeling of professionalism. The individual’s name that sits within the design of the Remuneration Trust doesn’t have an impeccable professional track record although arrogance alleges superiority. If the legal genius behind the remuneration trust were so brilliant, why has it failed, and I don’t mean a little failure but a damning failure? 

Thankfully, the same geniuses who also created a sunny solution to the loan charge have also created a supernova of an idea – a trust that resets itself if and when challenged. This brilliance is far beyond the capabilities of most solicitors, accountants and tax advisers. In fact, its apparently completely baffled HMRC. The cynic in me thinks the so-called solution was another attempt to rape poor unsuspecting clients of more fees. The reason why: having now worked a lot of RT cases, it appears to me the persons implementing the ‘planning’ were incompetent at the simplest of tasks and that would imply the so-called brilliance and technical genius responsible for the design may also be, well, debatable! 

If someone holds themselves out to be a genius with confidence and continually over a long period of time, does that make them a genius? For example, a professional could be disqualified, bankrupt, see cases lost at Tribunal but if that professional maintains they are just too much of a genius, are they? Really? Maybe a genius of a professional adviser is someone who diligently sets out the positives of an idea and perceives the risks conveying them to a client. The client then walks into any proposed planning informed and aware of what they are doing. Most of those met using the remuneration trust didn’t actually realise it was a trust for ‘suppliers’ etc.  

Some of those within the ‘network’ promoting the remuneration trust also became seemingly fee greedy. Fees were high anyway, for example some basic rate (20%) taxpayers suffered fees of 10% upon doing the planning so a net saving of 10% if the planning had worked. The reality is that those individuals will likely have to settle with HMRC despite any genius supernova ideas. The tax and interest accumulate and the debt to HMRC in many cases won’t be affordable or will cause severe financial restriction for a number of years or into retirement.

The network found innovative ways of charging more fees, for example administering the paperwork, white labelling the product and handling HMRC enquiries. Seems great until you realise that the administration was shoddy, the white label product set up wrong and the responses to HMRC weren’t with the intention to solve the issue but to keep them at bay whilst the facilitators earned more. 

The professional responsibility to a client seems to have been ignored. Instead, apparently HMRC has changed direction – the remuneration trust always worked and was accepted but now HMRC doesn’t like them. This may be easier to believe than the truth – it didn’t work from a tax perspective because its motive was avoidance of tax (and not asset protection) and legally, what a stupid structure to set up for asset protection – a trust for suppliers.  

There may be some silver linings. As mentioned above, the geniuses appear to be particularly poor at implementation. With so many solicitors and professionals involved, you would at least expect one of them to check how a legal deed has to be legally entered. You might also expect it impossible for a dormant company to establish an umbrella arrangement. You may even be further surprised to know how many companies did not legally resolve to enter the arrangements or make contributions.  

What happens when the implementation of tax planning is not as intended? It will depend on the circumstances although a number of cases we have considered should get a lower tax outcome than the usually assessed PAYE liabilities. To some wanting to settle, this will be good news. 

A number won’t want to settle with HMRC especially with the hope of an automatically resetting trust. An interesting point is that all the material seen in relation to the wonder trust doesn’t appear to detail why a tax charge doesn’t arise. If the trust is set up with the intention of avoiding tax and a means of remunerating a person, it will have to reset itself so as to meet its purpose. A number of these trusts will therefore be in limbo forever because the inevitable purpose was to remunerate.

However, if that was the purpose, the client misled the adviser because the client also had to state the intended purpose was not for avoiding tax. It is truly genius – earn fees at the detriment of your client and cover your ass at the same time.  

The likely end will be taxpayers having to settle liabilities and the responsible persons not being accountable for abusing a trusted relationship. The smart users of the remuneration trust will approach HMRC. The users that can ill afford the tax, will likely keep quiet. The facilitators will face challenges that will likely come to nothing.  

Now remember, seek proper advice. 

If you’re worried about becoming involved in a tax avoidance scheme, or think you’re already involved and want to get out of one, reach out to a member of the team today

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.

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This article is written by remuneration trust specialist Anton Lane