HMRC on tax avoidance arrangements

HMRC has sent letters because they are aware that recipients have used a "disguised remuneration avoidance scheme" that makes use of a "Trust or Foundation arrangement." The letter from HMRC encourages the recipient to come forward, "settle their tax position," and pay the extra tax that HMRC thinks is owed.

 HMRC’s focus on these types of arrangements, follows their success in four first tier tax tribunal cases over the last two years, specifically: 

• HMRC v Marlborough DP Ltd [2024] UKUT 986’
• Strategic Branding Limited v HMRC [2021] TC08348
• CIA insurance Services Ltd v HMRC [2022] UKFTT 144 (TC)
• M Northwood v HMRC [2023] UKFTT 351 (TC)

In these cases, the tribunal agreed the arrangements used constituted tax avoidance and were designed to artificially reduce company profits and disguise the income of the company’s directors, employees, or shareholders.

This also comes following HMRC’s discovery of widespread dividend diversion schemes, which have been detailed in their Spotlight 62 guidance

In addition, as VAT at 20% on private schools fees will be levied from 1 January 2025, it is unsurprising that HMRC would seek to deter people from using these arrangements.

Unfortunately, HMRC’s identification of further cases to attack based on their tribunal success seems to have been overenthusiastic (to say the least), and we have seen examples where the facts pertaining to the structure targeted, differ from the facts established in the settled tax cases as listed above. There is a huge difference between a structure set up specifically to aggressively avoid paying tax, and a simple family trust established to pay grandchildren’s school fees. However, this has not stopped HMRC from treating these innocuous arrangements as though they are something far more heinous and sinister.

These letters should not discourage grandparents from supporting their grandchildren using a trust structure and gaining the advantages of financial flexibility, passing on wealth, wealth protection and capital gains tax deferral. Read further detail on the benefits and tax implications of trusts.

How can we help?

If you are concerned that your trust or structure could be targeted by HMRC, we can review the relevant trust documentation and advise you on how best to go forward. For more information, please get in touch with Parris Britton or your local Crowe contact.

Alternatively, if you have received a letter from HMRC, we can review your trust structure and opine on whether HMRC’s position is correct. For more information, please get in touch with Ian Shirley or your local Crowe contact.