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Why Contractors in trust based schemes should think twice
Article Author: Charles James Posted on: August 11, 2016 (Full Author Bio in the box on the right side)
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On 10th August HMRC published their consultation document on tackling disguised remuneration meaning that from April 2017 many contractors who are in existing ‘tax efficiency’ schemes involving loans and trust will have to pay taxes on those figures. They also propose that having to pay those taxes up front is the most likely course of action which means these trust based arrangements form no financial benefit to those involved.
One example provided was where a Limited Company as ‘employer’ may make a loan of £10,000 to their ‘employee’.
The employer then enters into an arrangement with a trust, of which the employee is a beneficiary, with the end result being that the employee owes the trust £10,000.
They use this example to indicate how some contractors are operating through these trust based schemes with the advice from their accountants and belief themselves that this can make them more tax efficient. However, HMRC in their consultation have clearly pointed to almost every occasion where this ‘loan’ will be subject to income tax.
To further affirm these rules HMRC are proposing to allow for transfer of liabilities to the employee meaning if contractors close down a business they can still be expected to pay any taxes owed by the business years later.
These are still consultation proposals, but with HMRC’s current dogmatic approach, contractors should be looking closely at their set up and ensuring they are operating within HMRC’s future plans.
Here’s a direct link to HMRC’s consultation.
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