Regular readers may recall our report on the First Tier Tribunal ruling in September 2021 in favour of the beneficiary of a Remuneration Trust (Marlborough v HMRC) on the basis that the sums Mr Thomas received from the trust were shareholder returns and not ‘earnings’ (or disguised remuneration). More recently, a differently constituted First Tier Tribunal when considering an almost identical scheme used by Strategic Branding, has found in favour of HMRC, having determined not to adopt the reasoning applied in Marlborough.
Marketed scheme devised by Baxendale Walker
As in Marlborough, the Remuneration Trust tax avoidance scheme used by Strategic Branding had been originally designed by the now defunct Baxendale Walker LLP. After founding Strategic Branding, a marketing consultancy, in 2011, Mr Wilson was advised to set up a Remuneration Trust into which contributions from Strategic Branding were paid, representing the net profits of the company. Payments were then made to another company (Strategic Marketing Europe Limited) via the adviser which took a fee. Mr Wilson was the sole owner and director of both Strategic Branding and SMEL. SMEL lent money to Mr Wilson ostensibly for the benefit of supporting the business activities of Strategic Branding, for which he applied to HMRC for a corporation tax deduction. HMRC issued closure notices and discovery assessments having determined that the Remuneration Trust was a vehicle specifically established to follow a set of pre-ordained, contrived steps to enable Mr Wilson to avoid paying PAYE, NIC and corporation tax.
How the arguments developed
Mr Wilson argued that the Remuneration Trust had been established for the purposes of asset protection, to provide a legacy for his family, to reduce the risk to Strategic Branding from a possible legal challenge by a former employer, and to save him time managing Strategic Branding’s finances. He noted that he was not reliant on the Trust for income as he had saved enough money from his previous employment to last him for two or three years.
On the evidence presented by HMRC, the court did not find this explanation plausible. Despite Mr Wilson’s oral evidence in court being rather muddled, the judge did not consider that his inconsistencies stemmed from dishonesty. However, she was less impressed by his inability to explain why his written statements differed from his oral evidence. HMRC’s argument that the Remuneration Trust, into which contributions were paid by Strategic Branding (which ultimately ended up in Mr Wilson’s pocket) had been explicitly set up in order to avoid paying employment taxes, was received by the court as a more likely explanation. HMRC maintained that the purpose of the payments to Mr Wilson was not to support the business but as remuneration for him. Thus, any claim for corporate tax deductions would automatically fail.
The judge accepted HMRC’s submission that the Remuneration Trust was a mass-marketed tax avoidance scheme and that the steps involved in the various transactions between Strategic Branding, the Remuneration Trust, SMEL and Mr Wilson were pre-ordained and contrived. The judge concluded that it was always the intention for the original contributions to find their way to Mr Wilson in the form of loans, net of the agreed fee.
Inconsistent evidence loses the day
Unfortunately for Mr Wilson, none of the arguments he advanced for setting up the Trust held any sway with the judge, not least as his witness statements about the purpose of the funds received were contradictory. In his first statement, he observed that he intended to invest the funds for the benefit of the business; in his second statement, he referred to the funds as personal loans, lent at a commercial rate, and to be used by him personally. As she stated: “in reality, the contributions were intended to form part of a pre-arranged scheme to reward Mr Wilson for his work for Strategic Branding without incurring any liability to tax.” She went on to dismiss all Strategic Branding’s grounds of appeal against HMRC.
This is a good example of how each case turns on its own facts. Anyone who is targeted by HMRC for using a tax avoidance scheme that bears similar, or identical, characteristics to another case that was successfully defended in court, should not assume that they will achieve a similar outcome.
If you think that you have been unfairly targeted by HMRC because you entered into one of these schemes in good faith believing that, having taken professional advice, it had HMRC’s approval, you may have a claim against your professional adviser if they failed to outline the inherent risks of a tax avoidance scheme they are promoting.
We have successfully pursued claims for compensation on behalf of a number of clients against their accountant, financial adviser, tax adviser or even their solicitor. These professional advisers owed a duty of care to provide honest and appropriate advice on the risks associated with tax avoidance. If you feel you were not adequately or appropriately advised, you may have a claim for professional negligence.