2020-02-17
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Gold bullion schemes and the Loan Charge

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Posted by Matthew Goodwin on 12 March 2019

Matthew Goodwin - Tax Disputes Lawyer
Matthew Goodwin Associate-Solicitor-Advocate

As we draw nearer to the 5 April 2019 and the implementation of the Loan Charge, a number of more convoluted Employee Benefit Trust (EBT) tax planning structures are being found to be affected and have thus drawn increasing interest from HMRC.

The Loan Charge is a charge that HMRC is levying on certain qualifying outstanding loans taken by individuals from trust based tax mitigation strategies.  HMRC is charging income tax and National Insurance contributions on all outstanding loans.  For more information, click here.

One such structure is the Gold Bullion Scheme that was promoted by various operators from 2012 – 2016.  The majority of the enquiries we are seeing are in respect of the scheme operated by Qubic Tax.

The scheme

Under a Gold Bullion Scheme traditionally employees were purportedly paid in gold or some other asset that was subsequently encashed into an EBT structure.  The employee was then able to access the cash by taking loans from the EBT structure. (It should be noted that some of the Gold Bullion Schemes operated in slightly different ways involving credits to Directors Loan Accounts and subsequent obligations to repay sums due into the EBT).

As the scheme uses an EBT, HMRC’s position on EBT based tax mitigation structures relating to remuneration is, in essence, that they do not work.  More particularly, HMRC’s view of EBT based structures is that “at the time funds are allocated to an employee or beneficiaries, those funds should become earnings on which PAYE and NICs are due and should be accounted for by the employer” (see Spotlight 5).

HMRC’s view specific to the Gold Bullion Schemes is that they also do not work.  HMRC identified the theoretical obligation to pay the value of the asset to the trust at an unknown future date to be the main issue.  HMRC considers that where the individuals have actually taken cash, this is a payment of earnings and should be taxed as income accordingly (see Spotlight 30).

GAAR ruling

This position has been supported by the successful General Anti-Abuse Rule (GAAR) ruling obtained by HMRC following a referral to the GAAR panel in respect of gold bullion schemes.  It is unknown which scheme the GAAR panel was reviewing, but it is interesting to note the similarities between the GAAR panel’s findings and the First Tier Tax Tribunal’s findings in Doran Bros (London) Limited v HMRC in respect of the Qubic gold bullion scheme.

The outcome of the GAAR ruling is that the identified schemes do not function as initially sold.  HMRC will challenge the tax saving and, whilst this has not been tested by the tribunal, the outcome of the GAAR ruling indicates strongly that the tribunal will find in favour of HMRC.

Loan Charge

Irrespective of the merits of the initial planning, the practical implication of such schemes is that they are now rendered largely obsolete given the Loan Charge and GAAR ruling.  If an employee has withdrawn cash from the EBT following the use of a Gold Bullion Scheme – or in the cases of some of the schemes, the theoretical liability to the trust as a result of the Directors Loan Account - that money is now to be declared to HMRC and will be chargeable as income.

If the employer is still in existence, then the obligation is on the employer to report the use of the scheme to HMRC and charge the income to the client as if it had been received on 5 April 2019.  The PAYE and NIC charges will then fall payable by the employer by no later than 22 April 2019.

If the employee is dissolved or insolvent, HMRC may take steps to attach the income tax liability to the individual.  The individual will not be liable for NIC in such circumstances.

What can you do

If you were involved in a Gold Bullion Scheme and are now receiving correspondence from HMRC in respect of the Loan Charge or are otherwise concerned about the tax you are now having to pay to HMRC in light of the Loan Charge, then we are able to provide a review of your position and an unbiased opinion on your next best steps.

The majority of our clients are taking immediate steps to reach a settlement with HMRC in respect of the Loan Charge. We are assisting these clients in negotiating settlement with HMRC, including Time To Pay where required.  Not all clients want to settle, however, and where necessary we have commenced tribunal proceedings against HMRC.

We are also assisting clients in pursuing the professional advisers who put the client in this position in the first place.  A lot of the clients who were advised to utilise the scheme (and similar asset based schemes) did not know the extent of the risks involved in what they were doing.  If that risk was not properly explained to them, there is a potential to bring a claim against the professional for the damage suffered (this is the difference between the position the client is now in versus where they would be had they undertaken appropriate tax planning).

A warning

Time is very much of the essence in respect of these schemes.  HMRC  are indicating that settlement needs to be reached prior to 5 April 2019, and any claim against the professional adviser is subject to strict time periods (particularly in respect of Qubic where the period is even shorter than normal).  It is therefore sensible to assess the situation sooner rather than later.

About the author

Matthew Goodwin

Associate-Solicitor-Advocate

As an associate within the tax and financial services litigation team, Matthew regularly acts for corporates and individuals, dealing with a variety of disputes.

Matthew Goodwin

As an associate within the tax and financial services litigation team, Matthew regularly acts for corporates and individuals, dealing with a variety of disputes.

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