Up to 100,000 contractors are being pursued by HMRC for historic tax avoidance. In some cases, the amount due to be paid to the Revenue runs into the £100,000s.
Each contractor who is embroiled in this matter needs to decide what they are going to do. To use the cliché, doing nothing is not an option.
Employee Benefit Trusts (EBTs) were established as a vehicle to try to enable people reduce the amount of tax they had to pay. Schemes were set up for contractors (often in sectors like oil, IT and financial services) to use the EBT model to avoid paying the PAYE and National Insurance on funds they had received in their work as a consultant. They set up a company of which they were the director, but that company was a single-purpose vehicle which never had any assets.
HMRC have long claimed that transfers into EBTs constitute disguised remuneration; and now case law and legislation support that view. In November 2017 legislation was introduced which means that any loan made by EBTs to directors must be repaid by April 2019. If it is not, HMRC can seek repayment of the outstanding PAYE and National Insurance, along with any associated interest and penalties.
As there are no assets in the companies, HMRC are pursuing the individuals for the money. Many of the contractors involved feel that they are ‘victims’ of bad advice from their financial advisors. Some have tried suing those advisors, but to no avail.
The options available
HMRC are taking a tough stance, so the issue is not something to be avoided by anyone who gets a demand from HMRC.
If you are affected by this, we would advise you to register for settlement (deadline 31 May 2018) to keep your options open.
Many of the contractors involved are High Net Worth Individuals, earning large salaries and with considerable equity in their homes. That said, a lot of them will not have the means to pay back the money they owe within the permitted time-frame.
In these scenarios, they should seek professional advice to explore all of their available options. Given the variety of situations, there isn’t a “one-size fits all” solution.
The best option could be to:
- enter into an Individual Voluntary Arrangement (IVA)
- go into Bankruptcy
- get a loan to pay the debt off
- reach a Time to Pay (TTP) agreement with HMRC
Before deciding what to do, we strongly recommend that anyone facing this issue seeks professional advice to make sure that they mitigate their position to their best possible advantage.
Get your free expert, professional advice
If you are a contractor involved in this matter and would like some expert advice on what to do now, we can help you.
Clarke Bell are Licensed Insolvency Practitioners with over 23 years’ experience in helping companies and individuals deal with their cashflow problems.
For your free advice on what to do now, call 0161 907 4044 or email [email protected] and our Senior Partner (John Bell) will be able to advise you.