A new article in Spotlights which highlights avoidance schemes HMRC are aware of, warns about employee benefit trust arrangements that seek to avoid tax on income by circumventing new laws about to be introduced.

By way of reminder, in Spotlights, HMRC:

• provide some advice on tax planning listing some indicators that HMRC see as suggesting that a scheme may involve tax avoidance and which it is thus likely to investigate.
• identify specific schemes which, in HMRC's view, are not likely to deliver the tax savings advertised. Where HMRC see such schemes being used, subject to the particular facts, they will make a challenge and seek to ensure full payment of the right tax with the right due date.

The recent update highlights that HMRC are aware that taxpayers who have used employee benefit trusts as a means of avoiding tax on employment income are being targeted with products designed to shelter funds in current schemes from the effect of planned legislation. These arrangements rely on the availability of credit for loan repayments made before 6 April 2012.

In HMRC's view, while these convoluted arrangements seek to weave a way through the legal changes they do not succeed. HMRC are making it clear that even if they did succeed, HMRC would still challenge the scheme as delivering remuneration which should have been subject to PAYE under first principles.

Subject to parliamentary approval, the new legislation will be effective from 6 April 2011 and some aspects of the proposed new law will apply from 9 December 2010.

For more information on Spotlights visit http://www.hmrc.gov.uk/avoidance/spotlights.htm and for details of the new legislation targeting ‘disguised’ remuneration go to http://www.hmrc.gov.uk/budget-updates/disguised-remuneration-faqs.pdf

The Government also announced new legislation to tackle an avoidance scheme involving the leasing of plant and machinery. HMRC stress that this announcement is in line with the draft Protocol for announcements outside of a fiscal event, which was published in a discussion document on 9 December 2010.

Using this legislation, HMRC are targeting a scheme to prevent tax avoidance using a payment of a guarantee of residual value for long funding leases which, it is claimed, gives rise to tax relief for up to twice the amount of the payment.

For details go to http://www.hmrc.gov.uk/budget-updates/index.htm#19 and http://www.hmrc.gov.uk/budget-updates/draftleg-techback.pdf