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Disguised remuneration – updated self-assessment

David Francis David Francis

HMRC is issuing updated self-assessment statements to taxpayers suspected of involvement in disguised remuneration arrangements. If this applies to you, David Francis explains why it's worth considering this opportunity to settle your tax affairs.

Taxpayers had an opportunity to include disguised remuneration payments on their tax returns in 2018-2019 and 2020-21, even if payments dated from earlier years. Now the statutory deadline for submitting these returns has passed, where HMRC has data to suggest that a taxpayer has failed to account for disguised remuneration, they're issuing self-assessment statements to include estimated tax liabilities. This can be a daunting situation to find yourself in.

What should you do if you've received an updated self-assessment statement?

HMRC’s basis for estimating the tax liabilities included on the statement is unclear, and in our experience, the amounts are almost always overestimated. Additional penalties and statutory interest can make the total liabilities seem shocking.

If you've received an updated statement, it will be important to establish the accurate tax liability, and talk to HMRC to agree a correct position, and ideally mitigate any penalties.

The looming deadline for disguised remuneration trust schemes

As part of its continued efforts to counter tax-avoidance schemes, HMRC has recently opened an opportunity for users of remuneration trust tax-avoidance schemes to come forward and settle their liabilities. If this applies to you, you'll need to act fast, as the opportunity is only open to applications (with supporting computations) submitted before 31 July 2022.

If you've not yet approached HMRC about a disguised remuneration trust scheme, there's still time to submit a proposal. Anyone who wishes to settle on the published terms must notify HMRC and provide calculations of the amount due under the terms of the settlement by the deadline.

Can you apply for the remuneration trust settlement opportunity?

The qualifying criteria for the settlement opportunity are stringent and complex. The remuneration or creditor-protection trust you made use of cannot be either an employer benefit trust or employer-funded retirement benefit scheme. And the costs of contributions must have been taken as a deduction in calculating the profits of the business or trade.

If HMRC has already raised a dispute with you, this may also limit your ability to make use of the opportunity.

Should you apply for this opportunity?

As the terms are intended to be comparable to a court's offering, without the burden of litigation costs, some will find them favourable. It's therefore worth reviewing your circumstances in full and considering whether this opportunity could produce a preferable outcome. Settling at this stage will prevent future investigations into these arrangements, bringing the peace of mind that many people are relieved to reach despite the cost.

This opportunity does not remove or limit either penalty or interest exposure. However, an experienced tax-dispute resolution specialist can often have a significant impact on the penalty liability, especially if they're engaged early in the process.

What if you can’t afford it?

It might be tempting to watch these opportunities come and go if the potential tax bill isn't something you can face. However, if you do qualify, and it's the right choice for you, then this should not be a factor. HMRC is offering extended payment terms to those in need, at times far in excess of what could be obtained normally. Time-to-pay arrangements are always based on an individual’s specific circumstances, but it has published guidelines on reaching an affordable payment plan.

How we can help

A review of your historic tax position can ensure that the correct amount of tax is paid. Our team can do that, and determine whether you qualify for the settlement opportunity. We can support you through the process of liaising with HMRC and seek to minimise your penalty exposure.

Get in touch with David Francis if you have any questions about disguised remuneration, or would like guidance on any other compliance issues.