DISGUISED REMUNERATION: TAX AVOIDANCE USING CAPITAL ADVANCES, JOINT AND MUTUAL SHARE OWNERSHIP AGREEMENTS
HMRC is aware of a number of schemes designed to avoid Income Tax and National Insurance contributions (NICs) through a combination of capital advances and complex offshore joint (or mutual) share ownership arrangements.
HMRC’s strong view is that these and similar arrangements do not work. We will challenge anyone operating them and investigate the tax affairs of all users.
How the schemes are claimed to work
Under the arrangements, a contractor becomes an employee of an umbrella company or a connected entity, such as an offshore company. The employee may sign a loan or capital advance agreement and a joint (or mutual) share ownership agreement, confirming how their salaries are to be paid, by the employer company.
The employee is paid through 2 separate payments, on a weekly or monthly basis. The first payment represents a nominal salary, resulting in payment of little or no Income Tax and NICs. The second payment may involve ‘capital advances’, paid in the form of weekly or monthly loans.
The employer company then carries out various share transactions, involving an offshore joint (or mutual) share ownership trust. These are said to result in financial gains for the employee. The shares may also attract a dividend for the employee. The employee has no direct involvement in the share transactions, but receives monthly or yearly summaries that show their outstanding loans have been repaid as a result of the capital gains and dividends.
Through this process, these schemes attempt to disguise an employee’s earnings, which would ordinarily be subject to Income Tax and NICs. By using capital gains or dividends that attract other tax reliefs, the employer company attempts to avoid its tax liabilities as well.
These types of schemes are never approved by HMRC and employers and employees are likely to end up paying additional tax and interest and may be subject to penalties.
If your company uses schemes like this or you are asked or forced to be paid via one of these schemes, please get in touch with us.
Genius only operate genuine CIS or Self-Employed Payroll and as a result are fully compliant with the HMRC.
Call one of our support team to arrange a time to discuss, and we will arrange a time to undertake a full FREE health check.
Original Source - Gov.uk
SELF-EMPLOYED TRADE RATES 20% UP ON A YEAR AGO
Average pay for self employed trades has risen by nearly 20% since the first lockdown a year ago. According to the industry’s biggest payer of subcontractors, Hudson Contract, all regions ...
FURLOUGH SCHEME EXTENDED TILL MARCH AND SELF-EMPLOYED GRANT BOOSTED AGAIN
The government has announced a five-month extension of the furlough scheme while the self-employed will be eligible for a third grant worth up to £7,500. The original furlough scheme w ...
CHANGES TO THE HMRC EMPLOYMENT STATUS MANUAL WITH REGARDS TO UMBRELLA COMPANIES
It is good to see the HMRC trying to make adjustments to the rules set to protect the workers using Umbrella companies but this just goes to show that they really do not understand how most of the Pay ...
STATUS DETERMINATION STATEMENT: OFF-PAYROLL EXPLAINER FOR APRIL 2021
The off-payroll framework is fast approaching, there are still two of the key requirements of the new IR35 legislation from April 2021 which seem to be shrouded in mystery, the main legislative obliga ...
IR35 - RISK TO CLIENT/BUSINESS
Article from Alexander Wilson LL.B. (Hons.) (Dunelm.), CTAIR35 barrister and CTA - Helping all corporations safely retain independent contractors with strong legal advice"Inside IR35" is NOT ...
HMRC INTERNAL MANUAL EMPLOYMENT STATUS MANUAL
HMRC internal manual Employment Status Manual Published: 7 March 2016 Updated: 10 February 2020 see all updates Agency and temporary workers: the agency contract and the requirement for personal ...