HMRC wins disguised remuneration tax avoidance case

The Court of Appeal found in favour of HMRC's right to collect unpaid income tax directly from a contractor who arranged to be paid via loans from employee benefit trusts (EBTs).

HMRC welcomed the Court's decision that IT contractor Stephen Hoey was liable to pay the tax in his income and said that it

'confirmed that this kind of tax avoidance scheme does not work'.

Mr Hoey used a disguised remuneration (DR) tax avoidance scheme, entering into an arrangement where he worked through an umbrella company based outside the UK to provide his services to UK-based financial service companies.

He received most of his earnings in the form of loans, organised by the umbrella company, which were initially claimed not to be taxable. HMRC said that it is clear that these schemes do not work and the loans received are taxable as income.

Mr Hoey eventually accepted that he had received taxable income but he claimed he should not have to pay anything because he was entitled to a notional PAYE credit. There was no evidence that the UK-based companies that engaged him had any knowledge of the tax avoidance arrangements that he had entered into, nor of any requirement to operate PAYE.

Convoluted

The Court of Appeal's finding that Mr Hoey was not entitled to a PAYE credit confirmed HMRC's position in collecting tax from taxpayers in cases where they enter into these types of convoluted arrangements to avoid it.

HMRC used the opportunity of the victory in the case to issue a gentle warning. It said: "If you are involved in a tax avoidance scheme, or think you might be but are unsure, you should contact us as quickly as possible. We'll help you get out of it and settle your tax affairs. The longer you leave it the bigger the tax bill.

"Our job is to help get you back on the right track. If you can't afford to pay everything in one go, we may be able to offer you an instalment arrangement.

"You can settle under the Disguised remuneration settlement terms 2020. These terms and the opportunity to spread payments over a number of years are still available for anyone wishing to settle their disguised remuneration liabilities. This includes people who received loans before 9 December 2010, where HMRC still has open enquiries or assessments."