HMRC is aware of tax avoidance arrangements used by owner managed companies and their directors. These arrangements are used to reward onea ordirector more directors for the services they provide to a company, in a way that seeks to avoid paying Income Tax and National Insurance contributions, while the company obtains Corporation Tax relief.

HMRC believes these arrangements do not work. We will seek to challenge anyone promoting or using these arrangements to make sure they pay the correct tax.

The arrangements involve a company creating an unfunded pension obligation to pay one or more of their directors a pension. This step attempts to create an expense in the company accounts to reduce the company’s profits and the amount of Corporation Tax payable.

Users of these arrangements may have to pay moreconsiderable thanfees just the tax they tried to avoiduse asthem. wellYet, ascould payingstill potentiallyhave considerable fees to therepay promoter of the arrangements.tax Theyclaimed couldto also be subjectavoided, toas well as interest and penalties.a penalty.

How the arrangements claim to work

The company enters into an agreement with its director to give that director the rightrights to receive a pension from the company in the future. WhileHowever, receiptdue of the pension is not relevant to the effectivenessstructure of the scheme,arrangements, HMRC believes that for some of the arrangements, the director will never receive a pension payment. The company then claims a Corporation Tax deduction equal to the current value of the total future pension to be paid to the director.

Many arrangements may involve further steps, involvingsuch as one considered by the General Anti-Abuse Rule (GAAR) Advisory Panel. The GAAR is an independent advisory panel which approves HMRC’s General Anti Abuse Rule (GAAR) guidance. They provide opinions on cases where HMRC considers the GAAR may apply.

The further step considered by GAAR is where the company transferringtransfers its obligation,obligation to pay the director a pension in the future,future to a third party. The third party is often a relative of the director or another director of the same company.

The company agrees to make a payment to that third party, inso return for the third partyparty, assuminginstead of the company’scompany, obligationagree to pay the director thea pension. This payment may be made to the third party, or the third party can ask for a payment to be made to the director instead.

These arrangements claim to result in the director, or a third party linked to the director, receiving funds from the company. The funds arehave claimed to carry no immediate liability to Income Tax and National Insurance contributions.

Regardless of the tax effect, these arrangements often result in unusual outcomes. For example, a spouse agreeing to pay their partner a pension without receiving anything in returnreturn.

The orGAAR directorsAdvisory agreeingPanel tohas mutuallygiven assumeits pensionopinion obligationson toa eachset other,of witharrangements theby apparentwhich effecta thatcompany eachrewarded willits enddirector upthrough payingan aunfunded pension toobligation. the other.

The GAARcompany Advisoryand Panelthe hasdirector givenclaimed threethere separateis opinionsno onliability setsto ofIncome arrangements. TheTax relevantor opinionsNational areInsurance thecontributions, opinionsbut of: had also:

• transferred the GAARobligation Advisoryto Panelpay opinionthe ofpension 11to Februarytheir 2022

• thespouse GAARin Advisoryreturn Panelfor opiniona ofpayment 7to Augustthe 2024 director’s loan account

• the

  claimed a Corporation Tax deduction

The GAAR Advisory Panel opinion of 29 October 2024

In allon instances the panelarrangements it considered is that it is not a reasonable course of action either to enter into, or carry out, these tax arrangements.

What will happen to those who use these arrangements

HMRC strongly believes these arrangements do not achieve the tax savings promised. HMRC will challenge anyone promoting such arrangements and investigate the tax affairs of all users.

A company that uses these arrangements is unlikely to be able to claim the Corporation Tax relief intended. This is because the expense shown in the company accounts may not align with general accepted accounting principles (GAAP). The expense may also be disallowed for other reasons.

Arrangements may involve transferring the obligation to a third party. In this case, users may find that:

• extra Income Tax and National Insurance contributions are due — this could be from the company and company directors on the amount due to the third party

• other tax charges may also arise — they may be charged a penalty for submitting an inaccurate tax return to HMRC

Users of these arrangements may be charged a penalty for submitting an inaccurate tax to return to HMRC. ThereThis arepenalty differentwould rulesbe forbecause penaltiesof whencarelessness, theunless inaccuracythey relatescan toshow taxHMRC avoidancethey arrangements. Readtook aboutreasonable penaltiescare for carelesstax inaccuraciesreturns sent to HMRC after 15 November 2017 relating to a tax avoidance.period both:

• beginning after 5 April 2017

• ending after 15 November 2017

In deciding whether to counteract your arrangements, HMRC may considerrefer to the opinionsopinion already given by the GAAR Advisory Panel. ForIn HMRCthis tocase, do so, both of the following needs to be true:

• you have used arrangements that in substance operate in the same way as those already considered by the GAAR Advisory Panel

• the arrangements were entered into on or after 17 July 2013

You may also receive an accelerated payment notice if you receive a GAAR counteraction notice. This means you will have to pay the disputed tax upfront while HMRC continues its investigations. There is no right of appeal against an accelerated payment notice, but taxpayers can make representations.

Where the GAAR applies and the arrangements were entered into after 14 September 2016, users may be subject to a 60% GAAR penalty.

This Spotlight 58 covers arrangements that operate in substantially the same way as those considered by the GAAR Advisory Panel, as well as similar arrangements.

Where you have used arrangements that are not equivalent to those already considered by the GAAR Advisory Panel, HMRC will consider whether the GAAR might apply to thosesuch arrangements. A new opinion would need to be obtained from the GAAR Advisory Panel before HMRC could counteract the arrangements under the GAAR.

What this means for promoters

We will pursue anyone who designs, promotes, sells or otherwise enables others to use these arrangements.

This includes charging an enabler’s penalty on those who enable the use of abusive tax avoidance arrangements, which are later defeated by HMRC. The penalty will be equal to the fees received by the enabler for enabling the arrangements.

This penalty applies where any of these arrangements have been enabled and entered into on or after 16 November 2017.

HMRC will also use its powers under the promoters of tax avoidance schemes regime against those who promote tax avoidance schemes.

Scheme promoters should carefully consider the disclosure of tax avoidance schemes (DOTAS) legislation to decide if the arrangements they are marketing should be declared to HMRC.

What to do if you’re using thesethis or similar arrangements

We want to help people steer clear of tax avoidance by asking them to stop, challenge and protect themselves, and others.

If youyou’re worried about becoming involved in a tax avoidance scheme, or think you’re already involved and want to get out of one, HMRC is here to help. We offer a wide range of support to help get you back on track or avoid being caught out in thesethe first place.

If you do not have an HMRC contact and you want to get out of this or similar arrangements,arrangements talkyou tocan contact HMRC about getting out of anthis avoidanceor scheme.similar arrangements.

If you’re using this or similar schemes or arrangements, HMRCwe strongly advisesadvise you to withdraw from it and settle your tax affairs. affairs to prevent building up a large tax bill.

YouIf you’re facing difficulty in making a tax payment you should takeask appropriateus stepsabout affordable monthly payment options. We’ll always try to contactwork HMRCwith beforeyou to set up a time to pay arrangement based on your income and expenditure.

Time to pay arrangements are based on an individual’s specific financial circumstances, so there is no ‘standard’ time to pay arrangement. We look at what you takecan actionafford to withdrawpay and then use that to work out how much time you need to pay and over what time period.

By withdrawing from the specificarrangements schemeand arrangementssettling containedyour intax thisaffairs, Spotlight.you’ll:

• avoid the costs of investigation and litigation

• minimise interest and penalty charges (where they apply) on tax you should have paid

If you’re already speaking to someone in HMRC about your use of an avoidance scheme, you should contact them to discuss this further.

If you do not have an HMRC contact and you want to get out of this, or similar arrangements, you can contact HMRC to talk about getting out of anthis avoidanceor schemesimilar arrangements.

Anyone concerned about the schemes they are currently using should also consider:

• getting independent professional tax advice
• speaking to one of the tax charities such as TaxAid — find out more about the TaxAid helpline on the TaxAid website

Get more information or report a scheme

You can contact HMRC to report tax avoidance arrangements, schemes and the person offering you the scheme. You can do this anonymously and do not have to give your name, address or your email.