HMRC backs down again over advance payments of disputed tax

HM Revenue & Customs has once again been forced to back down over tax demands made to users of Employee Benefit Trusts, commonly known as EBTs.

This is the second time that a legal challenge has forced HMRC to withdraw demands for payments.  In January, a legal decision meant that around 2,000 individuals were told they did not have to make advance payments pertaining to their use of EBTs.

What are accelerated payments?

Accelerated payments refer to the process whereby the Revenue seeks to recover disputed tax upfront without recourse to the normal legal channels.  Since the new rules on these upfront payments were introduced in 2014, HMRC has sent out 46,000 notices and expects around £5bn in payments to be forthcoming once the notices have all been issued by the end of 2016.

The latest case follows the start of a judicial review led by users of an EBT who dispute the enforcement of these advanced payments are legal. As a result of the precedent set, HMRC may be forced to withdraw its payment notices to other users of the EBTs designed by the firm Premier Strategies. This represents a strong blow to their wish to do away with the small matter of due process in these types of cases.

What are Employee Benefit Trusts?

EBTs work by having salaries and bonuses paid into trusts on behalf of employees and their families.  These schemes, it is alleged by HMRC, exist to create the situation whereby users postpone paying tax, while at the same time enjoying benefits from loans, property, etc. bought with the funds.

The glare of the spotlight has been increased by ‘The Big Tax Case’ involving Glasgow Rangers Football Club (or more specifically Murray Holdings – the club’s former operating company).  After a series of rulings in favour of HMRC, the liquidators of the football club have once again announced that they will be appealing the decisions at the Supreme Court. The whole sorry business drags on.  Given the poor execution of the EBT on behalf of Rangers, this writer does wonder why it took HMRC so long to get a result!

EBTs versus the legitimate use of other Trusts

The case of Rangers Football Club arose because there was reasonable suspicion that the payments made into the EBT were merely a redirection of employee earnings, not a gross contribution issuing from profits.

This is indeed what the judges eventually ruled in this instance.  However, the ruling is hardly news – merely a re-statement of basic tax law.

The Rangers case is an ‘EBT’ case, and nothing to do with legitimate trust planning, such as the use of Remuneration Trusts.