HMRC's campaign against disguised remuneration schemes continues at pace. One of the latest schemes under scrutiny, is the Equas Joint Share Ownership Plan (JSOP) scheme, run by Equas Personnel Solutions Ltd, trading as MyEquas.
We are acting for a growing number of MyEquas clients who, as a result of the negligent actions of MyEquas and professional advisers, have been left in a significantly worse position as a result of using the JSOP scheme.
What is the MyEquas JSOP tax scheme?
The MyEquas JSOP scheme is a tax avoidance scheme that uses a co-ownership trust and a joint share ownership plan to incentivise employees financially.
Unfortunately for users of the scheme, HMRC does not believe that the scheme worked as intended and have applied the Loan Charge, arguing that the "loans" are disguised remuneration and were chargeable to income tax and national insurance.
How did it work?
The JSOP scheme is not significantly different from previous disguised remuneration schemes involving third party loans but is slightly more complicated.
It involves the following steps:
- An individual wishing to use the scheme (for the purpose of this example, Mr Hewitt) enters a loan agreement with MyEquas who agree to provide lending on the condition that Mr Hewitt use the initial drawdown process to acquire shares in Epsiom Holdings Limited, the parent company of MyEquas;
- Mr Hewitt then appoints a director of Epsiom Holdings Limited as his attorney in relation to the JSOP;
- Mr Hewitt enters into an employment contract with MyEquas on a zero-hours contract;
- Mr Hewitt and a company called Sanctuary First Trustees Limited, (who are the trustees of the Equas Personnel Solutions Co-Investment and Share Ownership Trust) then enter into a joint ownership agreement to purchase shares in Epsiom Holdings Limited (as per step 1 above);
- Pursuant to the joint ownership agreement with Sanctuary First Trustees Limited, Sanctuary First Trustees Limited has the power to acquire Mr Hewitt's interest in the jointly owned shares;
- MyEquas then enter into a contract with Mr Hewitt's limited company, Mr H Consulting Ltd, to provide Mr Hewitt's services;
- Mr H Consulting Ltd pays MyEquas for Mr Hewitt's services;
- MyEquas pays Mr Hewitt a small sum, net of income tax and national insurance contributions (but usually below the personal allowance limit, so no tax is paid);
- MyEquas takes a cut of the balance of the sums from Mr H Consulting Ltd and "loan" the rest to Mr Hewitt pursuant to the loan agreement (see step 1);
- Pursuant to the loan agreement (step 1) and the joint ownership agreement (step 5), Mr Hewitt uses a small amount of the "loaned" sum to jointly purchase, with Sanctuary, shares in the capital of Epsiom Holdings Limited;
- In due course, it is expected that MyEquas would have accepted a return of Mr Hewitt's shares in Epsiom Holdings Limited as repayment of the "loans" – although it should be noted that we are yet to see a client who has concluded the planning fully in this way, with the result that the loans to MyEquas remain outstanding.
A complex set of transactions but the reality is that Mr Hewitt has received the money in the form of a loan that will never be properly repaid, which has not been charged to tax. Other than the outcome of the various intentionally opaque transactions, this sum would have been treated as employment income. HMRC's view is that these arrangements are caught by Part 7A ITEPA 2003 and, in any event, fall within the scope of the Loan Charge.
Mr Hewitt, as with most of our clients, has now paid out:
- sums of money to MyEquas and Epsiom Holdings Limited (also, in reality, MyEquas);
- a higher rate of tax than if Mr Hewitt had taken dividends from Mr H Consulting Ltd (or some other vanilla tax planning approach had been adopted); and
- is likely to pay additional interest and penalties in due course if HMRC launches full and proper investigations.
Mr Hewitt also continues to carry the liability to MyEquas for the loan agreement.
Group Action against MyEquas
We represent a number of former MyEquas clients in a group action against MyEquas pursuing claims for breach of contract and professional negligence. We consider it is clear that the MyEquas JSOP Scheme does not work and, more importantly, would never have worked given HMRC's approach to aggressive tax planning of this nature since 2010.
It is expected that a third party funder will come on board shortly to provide funding for the group action as it progresses, together with an insurer to protect against adverse costs of the claim.
If you were part of the MyEquas JSOP Scheme and would like to be a part of this group looking to recover losses you have suffered, please get in touch to further discuss your options.
We are also able to assist in challenging, negotiating and settling with HMRC on behalf of clients. In the last 12 months, we have saved clients over £1.2 million in tax payments to HMRC.