HMRC has published a new Spotlights update on a scheme designed to turn income into capital gains for the purposes of benefiting from Entrepreneurs’ Relief.

The scheme works by individuals selling the beneficial ownership of their company to entities based in Cyprus. They then become employed by that entity. The individual remains a director of their company which continues to invoice for their services (even though they are now employed by the entity in Cyprus).

The monthly payments are then stated to be taxable as a capital gain at 10% (following an Entrepreneurs’ Relief claim) rather than employment income.

HMRC considers the scheme does not work as it considers the arrangements “to be highly contrived” and involving a “number of artificial steps”.

A copy of Spotlights can be found here.