HM Revenue & Customs (HMRC) have been awarded the ruling in two cases involving disguised remuneration arrangements, reports have revealed.
The news follows the announcement earlier this year that the regulator would begin imposing the controversial loan charge on contractors involved in such schemes.
HMRC argues that disguised remuneration arrangements are used by companies to reduce their overall tax bill by paying workers in loans. The loan is then routed through a low tax jurisdiction and never repaid, meaning minimal national insurance contributions (NICs) are paid on the sum.
However, the loan charge would see the appropriate amount of tax repaid in full – with the charge being backdated as many as 20 years – meaning those involved could face huge tax bills.
In today’s rulings, a First-tier Tribunal (FTT) ruled that Hyrax Resourcing and Curzon Capital had both used disguised remuneration schemes to hide income that should have attracted income tax and NICs.
HMRC said both companies should have come under the disclosure of tax avoidance schemes (DOTAS) scheme, arguing that “the amounts paid by way of a loan are no different to normal income and are – and have always been – taxable”.
Commenting on the outcome of the ruling, the FTT said: “There is no other rational reason for why anyone would implement a convoluted and expensive set of arrangements which left them with a legal (if economically unreal) obligation to repay a sum that they would otherwise have received as salary, save for the expected tax advantage.”
The FTT added: “It was self-evidently the case that the tax saving was the main benefit that might be expected to arise from the arrangements.”
According to HMRC’s most recent statistics, some 50,000 workers may be involved in a disguised remuneration scheme. It has asked those to come forward and settle in order to spread the cost over an affordable period of time.
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