Disguised Remuneration Schemes (DRS) such as Employment Benefit Trusts, Remuneration Trusts, Employer-Financed Retirement Benefits Schemes and similar were a popular tool sold to the boards of many businesses and corporates of varying levels of size to mitigate tax liabilities and payments to HM Revenue & Customs (HMRC). DRS have been in the public eye more than ever following the ultimate landmark decision in relation to the DRS used by Glasgow Rangers. The reality is much more serious for those using DRS. There have been numerous Tribunal decisions in favour of HMRC supporting its efforts to recover unpaid tax by corporates using DRS. Further, the Government reaffirmed in its 2016 Autumn Statement that it intends to extend the scope of HMRC recovery powers to allow for action against individual participants (and beneficiaries) of such schemes.
The Government has now introduced legislation to tackle existing, and prevent future use of, DRS. The majority of this legislation has already been enacted, or has been consulted on and is included in the Finance Bill 2017.
The legislation introduces a tax charge on all loans (or quasi loans) made since April 1999 which remain outstanding as at 5 April 2019 as if the loans were remuneration paid on 5 April 2019. This treatment exposes beneficiaries of loans under such schemes to personal liability and will not eradicate past years’ tax liabilities. As a result of this legislation, all participants of DRS (whether HMRC has an open enquiry or not) need to urgently consider their positions to understand the liability of the company, its directors and shareholders (as well as its employees). An assessment for or demand for the payment of tax not previously paid by virtue of the participation in a DRS will have implications on the cash, balance sheet and the profit for corporates. Understanding the implications of the legislation, HMRC’s powers and planning for claims is essential.
Accelerated Payment Notices (APNs) were introduced by the Finance Act 2014 to assist HMRC in its clampdown in dealing with disputed DRS. In essence, they allow HMRC to demand payment of the disputed tax upfront as soon as an investigation into the tax scheme starts. They cannot be appealed.
In February 2016, HMRC announced that it was issuing over 3,000 APNs a month and it has recently been reported that more than 75,000 APNs have been issued since they were introduced.
APNs give rise to serious solvency issues for some companies and individuals as HMRC are also cracking down on unpaid APNs by issuing enforcement action against individuals and companies who have failed to meet terms and pay the disputed tax within 90 days. This includes asset seizures, court proceedings, and insolvency action such as liquidation and personal bankruptcy.
HMRC is aware that many individuals and companies will not want to wait until 5 April 2019 to start addressing these issues. HMRC is encouraging those who have participated in DRS to be proactive and bring historic UK tax affairs up to date. Settling with HMRC now means that the proposed tax charge will not be payable.