HMRC warning on entrepreneurs’ relief tax avoidance scheme
HMRC has issued guidance about what it says is a new capital gains tax (CGT) tax avoidance scheme which attempts to exploit entrepreneurs’ relief by turning income into a capital gain, as a way of avoiding income tax and National Insurance contributions (NICs)
16 Sep 2016
In its ‘spotlight’ warning on the scheme, HMRC says it operates by individuals selling the beneficial ownership of their company to, and taking up employment with, entities based in Cyprus.
They remain a director of their company and the company will continue to invoice for their services, even though their employment is now with an entity in Cyprus.
The promoters of the scheme claim the monthly payments will be taxable as a capital gain at 10%, following an entrepreneurs’ relief claim, rather than as employment income where income tax and NICs will be due.
HMRC’s position is that while the promoters say the scheme is legal as it is a simple business transaction, it involves a number of artificial steps that are common in tax avoidance schemes and as such HMRC considers this scheme to be ‘highly contrived’.
The guidance states that HMRC will investigate the tax affairs of anyone who uses this scheme before they submit their tax return. When a tax return is submitted HMRC will open enquiries into it and seek full payment of the tax due, plus interest and any penalties where appropriate.
Users of the scheme are advised to contact HMRC to discuss their tax affairs.