Pharmaceutical Company in Unsettled Circumstances

Many people still must resolve and pay the sums due to HMRC, on their Tax Avoidance schemes and disguised remuneration arrangements.

Vast HMRC delays have been encountered in this case below, which was almost reaching settlement when Covid struck. In March 2020 the case was paused, as were all other enquiry cases whilst HMRC staff were redeployed onto furloughing matters etc.

In September 2022 HMRC reared its head again and commenced action to collect the tax etc due. I have to say that the Revenue officers concerned have dealt with my clients with great compassion and were never judgemental. I firmly believe that HMRC do hold the opinion that the clients were ‘sold down the river’ to a large extent by the offshore trust providers offering these schemes.

They do you say that ‘if it sounds too good to be true it probably is’ and in these cases after many years HMRC now have the backing of tax cases won to chase the remaining ones to settlement.

However due to the long HMRC delays involved (and in many cases that the clients’ apathy in ignoring the fact that this matter was hanging over their heads) it still means that interest is charged right back to the date the tax should have been paid and this is a very large debt accruing right up to the date payment is made. Even in lengthy time to pay arrangements forward interest is charged which greatly adds to the debt.

This case is a one-off as far as I’ve seen, in as much as no actual cash changed hands, however the arrangements comprised a large credit to the directors’ loan account of £600,000 subsequently drawn down tax-free by the director over the following two or three years. This was treated as a loan and no tax was paid thereon.

The chickens have now come home to roost and HMRC have raised a Regulation 80 determination on the tax (and national insurance assessment) only.

The whole amount of tax is due at the date the DLA was credited. They will not countenance assessing it over the years in which the loan was drawn down as it was ‘available’ to the director to draw from the date of the DLA credit.

The company involved, whilst now thriving, was affected badly by Covid and will have insufficient funds to pay this in one lump sum.

I have successfully appealed the Regulation 80 etc assessments and all tax has been postponed pending Counter Avoidance picking up the reins.

HMRC were quite happy to ‘stand over’ the tax as there are other liabilities due and funding will have to cover the whole settlement. As above, large amounts of interest have accrued from the date the tax should have been paid, as well as the £10,000 court fee and the inheritance tax.

In many cases the tax etc due to HMRC, after the lengthy delays will equal the remuneration sheltered from tax in the first instance.

A time to pay arrangement over a lengthy period will need to be arranged by myself and my client and HMRC appear to appreciate the difficulties involved and agree to this.

We had sent every piece of documentation to the HMRC counter avoidance team many years ago in the post and periodically by email. Numerous reminders have been sent to the counter avoidance team who are dealing with these matters in date order, yet we still await HMRC action to close the case down.

This would lead you to believe that they have many such large, unsettled tax avoidance schemes on their hands. I’m sure that if they were able to get to grips with all these cases and draw up time to pay arrangements or collect the tax due now it would bring in millions of pounds to the Treasury which they are clearly in need of!

I have been involved in many settlements of similar smaller contractor loan arrangements through small family companies where the director set up a scheme to draw tax-free loans rather than their dividends.

This was at great cost to them as the schemes require large fees to be paid for the Trust’s services. In all cases the clients were invited to join these schemes on the basis that they were legitimately outside to the tax regime.
I can say that in the cases I’ve dealt with, the tax settlements came as somewhat of a shock as well as a punitive, costly exercise for the client. Some named companies I have dealt with in my local area, offering clients these tax-free loan arrangements, were Norris and AML, of which I must have settled around 50 cases over the last 2 to 3 years.

There are still a couple of unsettled cases from these firms as well as other people inadvertently being brought into ‘umbrella’ companies unbeknown to them, where their jobs were offered to them on a ‘take it or leave’ it basis.
Many of these were nurses, doctors, social workers and IT specialists all believing that they were paying the correct amount of tax through PAYE, and many had numerous employers during a tax year.
Overall the tax they paid was insufficient and HMRC are taking steps to recover this from them all. To date whilst interest is charged no penalty charges have been levied.