To ask the Chancellor of the Exchequer, in relation to the Loan Charge 2019, whether Employment Benefit Trust schemes have always been considered defective by HMRC; and what the evidential basis is for the requirement to bring forward legislative proposals to enable HMRC to collect tax on loans issued since 1999.
Employment Benefit Trusts (EBTs) are often used as third parties in Disguised Remuneration (DR) schemes. DR schemes are contrived avoidance arrangements that pay loans in place of ordinary remuneration, with the sole purpose of avoiding income tax and National Insurance contributions.
It is the view of HMRC and the Courts that these types of arrangements have never been effective and tax was always due. HMRC has consistently challenged their use and publicised the risks of trying to avoid tax. They have opened and settled thousands of enquiries into the use of DR schemes, and successfully litigated a number of cases in the courts. The most well-known judgement was the unanimous Supreme Court decision in favour of HMRC against Rangers Football Club.
HMRC is working hard to help individuals get out of tax avoidance for good and is encouraging anyone who is concerned about their ability to pay what they owe, to contact them as soon as possible to discuss their position. In November 2017, HMRC set up a dedicated helpline for those wanting to settle their avoidance scheme use, and discuss payment options. HMRC will work with all individuals to reach a manageable and sustainable payment plan wherever possible.
Since the announcement of the 2019 loan charge at Budget 2016, HMRC has now agreed settlements on disguised remuneration schemes with employers and individuals totalling over £1 billion. Pay As You Earn (PAYE) liabilities fall on the employer in the first instance. The charge on DR loans does not change this principle and the employee will only be liable where the amount cannot reasonably be collected from the employer, such as where the employer is offshore or no longer exists. Around 85% of the settlement yield since 2016 is from employers, with less than 15% from individuals.
HMRC has also introduced a simplified process for those who choose to settle their use of DR avoidance schemes before the loan charge arises. DR scheme users who currently have an income of less than £50,000 and are no longer engaging in tax avoidance can automatically agree a payment plan of up to five years without the need to give HMRC any information about their income and assets. This arrangement has been extended to 7 years for scheme users who have an income of less than £30,000.