One of the South West’s leading tax experts has warned business owners that HMRC is clamping down on paying employees in gold bullion and other methods of “disguised remuneration”.
Anton Lane, managing partner at Bristol-based Edge Tax, says the use of gold bullion is a common example of tax avoidance schemes which are now coming under HMRC’s eagle eye.
Such payments are examples of how some promoters and employers attempt to be more thorough in their attempt to ‘disguise’ remuneration.
Earlier this year, George Osborne announced plans to put a stop to the practice and, following a technical consultation later this summer, further legislative changes will soon come into effect.
Mr Lane said: “These schemes, in their most basic form, generally involve an employer paying a third party (often an Employee Benefit Trust) who would then provide the money to the employee in the form of an interest-free ‘loan’, with terms effectively dictating no repayment was due during the employees lifetime.
“However HMRC considers that, in reality, a cash payment is made (since assets are usually certainly readily convertible) and the future obligation would never be fulfilled; therefore the reward is taxable as earnings in their view.
“Business owners and the accountants who advise them should be under no illusions that disguised remuneration schemes – historically used to reduce the amount of Income Tax and NICs paid by employers and employees – are no longer viable tax mitigation measures.
“Schemes were structured so individuals would receive both an asset (such as gold) and an obligation (say to contribute to a Trust); resulting in a theory that no tax liability would arise.
“But a string of losses in court show that these efforts to avoid tax payments are increasingly made in vain and now HMRC has confirmed plans to put an end to the practice.”
Mr Lane said that In fact HMRC’s interest in the use of gold bullion as an ‘avoidance’ investment is neither new, nor a passing fancy: “Over the years there have been a number of cases in which they seek to enforce the ineffectiveness of some of these schemes – including that of actor and comedian Sir Norman Wisdom, who made the headlines way back in 1968 when his unfortunate investment in silver bullion landed him with a rather large income tax liability.
“In December 2013, US appeal courts upheld the conviction and significant fines given to Las Vegas businessman Robert Kahre for paying his employees in gold coin. Now the UK Government has announced its intention to prosecute serial evaders and scheme promoters, so the risk of prosecution on this side of the Pond is far greater than ever before.
“In all cases from now on, it’s worth applying the ‘duck test’. If payments look like remuneration and feel like remuneration, but without the tax consequences of its being taxed as remuneration, it is likely to be regarded by HMRC as tax avoidance.
“Where remuneration tax planning has been implemented it would now be prudent to obtain an independent view on the tax risks. Even though no specific settlement opportunities exists, there are mechanisms to regularize tax affairs with HMRC, if necessary, in a more favourable manner than an investigation.”
Please call Edge Tax for a no obligation chat if you are concerned by any of the points raised in this article, or contact info@edge-tax.com.