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Paying tax up front?

Autumn Newsletter 2010The tax authorities are turning the screw yet again on tax avoiders with a range of new measures that could affect a number of taxpayers.

A few taxpayers exploit the cash flow advantage of retaining tax during a dispute with HM Revenue & Customs (HMRC) over liability. These disputes may go on for several years. The return on the money earned in that period may well exceed HMRC’s interest rates. The Government is consulting on proposals to remove these cash flow benefits from those who use ‘listed’ high risk tax avoidance schemes.

HMRC proposes that users of a ‘listed’ tax avoidance scheme will have to disclose the use to HMRC. If, in due course, it is found that the scheme does not work, an additional charge would be payable on the underpaid tax. This charge would reflect the amount underpaid and the length of the delay, thus removing the cash flow benefit of using the scheme. It could be avoided by paying the tax ‘on account’ upfront. HMRC would repay if it lost any subsequent litigation.

Another way in which HMRC hopes to collect tax earlier is through the disguised remuneration legislation. The new rules came into force on 6 April 2011. They apply to rewards that are earmarked for employees or made available to them in some other way, by a third party, which is usually an employee benefit trust (EBT) but could be some other vehicle. Tax and national insurance contributions will be charged under PAYE on the money or the benefit for the employee, for example, through a loan.

Many businesses have genuine commercial EBTs and similar arrangements with no tax avoidance intentions. HMRC has now confirmed that generally they should not be affected, although the position can be complicated.

HMRC is offering firms that have used EBTs and similar arrangements the opportunity to resolve outstanding enquiries without recourse to litigation. It intends to write before the end of August to all employers and companies with open EBT enquiries. If firms do not respond to the opportunity by 31 December, HMRC will deal with enquiries formally. Please contact us for further information.

 

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