A tax tribunal has ruled that PAYE tax and National Insurance Contributions should have been paid on bonuses given to directors through companies which were specially set up just to be liquidated and pay out the cash.
The decision by the First-tier Tribunal has protected £22 million in PAYE tax and National Insurance.
Tower Radio Ltd and Total Property Support Services Ltd were lead cases at the tribunal. The tribunal’s decision is relevant to 104 other companies which used the same tax avoidance scheme to try to pay bonuses without any PAYE tax or National Insurance Contributions. The companies set up subsidiary companies as special purpose vehicles (SPVs) funded with surplus cash. The directors were awarded restricted shares in the SPVs which were then liquidated and the cash paid out to the directors as distributions in respect of their shares.
The tribunal judge ruled that PAYE tax and National Insurance Contributions must be paid on the money received by the directors.
Exchequer Secretary David Gauke said:
“This scheme was designed specifically to avoid paying tax and National Insurance; the ruling is another important win for HMRC in its work to ensure the right amount of tax is paid by everyone. This is a clear result and should act as a warning to others who try to manipulate the system.
“The government has invested nearly £1 billion in HMRC to tackle avoidance and evasion and to make sure HMRC has the specialist skills, resources and commitment to challenge schemes like this and it will succeed.”
Notes for editors
1. This scheme was promoted by Barnes Roffe and used in tax years 2003/4 and 2004/5.
2. The First-tier Tribunal decision is available here.
3. The hearing was conducted under Tribunal Procedure Rule 18, which is used when there are other cases with common or related issues of fact or law at stake.
4. The General Anti-Abuse Rule tackling abusive tax avoidance became law on 17 July 2013.
5. Follow HMRC on Twitter @HMRCgovuk
6. HMRC’s flickr channel www.flickr.com/hmrcgovuk
Issued by HM Revenue & Customs Press Office
HM Revenue & Customs (HMRC) is the UK’s tax authority.
HMRC is responsible for making sure that the money is available to fund the UK’s public services and for helping families and individuals with targeted financial support.