The General Anti-Abuse Rule (GAAR) Advisory Panel have published details of their opinion of 25 June 2018: employee rewards using deeds of contribution, employee loan and tripartite agreements in conjunction with an employee obligation to an employer-financed retirement benefit scheme (EFRBS).
The planning is devised to transfer cash to employees and avoid the Disguised Remuneration charge in Part 7A ITEPA 2003.
Under the planning, A Ltd, under the terms of a covenant agreed to pay about £791.000 to its EFRB. The director and the employees and their relatives being beneficiaries of the EFRB. It then made a similar sum available to its director and a couple of employees and using various deeds of assignments one amount was offset against the other. The net effect was that the company’s assets were reduced by £791,000 and the employees received the benefit of a similar amount free of tax.
Unsurprisingly the GAAR panel concluded that the planning was ‘abnormal and contrived’, saying that there was no reason, other than for tax purposes, to create a complex web of undertakings to pay, assignments of benefits of undertakings, and releases of obligations to pay, so as to provide funding to the EFRB and money to the employees. Had the EFRB been funded in the normal way by cash from A Ltd and the EFRB trustee lent funds to the director and employees no one would have been in a substantially different economic or commercial position, and, there would have been no need to involve Trustee, other than as EFRB trustee, in the arrangements.
The GAAR panel considered that the scheme was abnormal and contrived and opined that:
- entering into the tax arrangements is not a reasonable course of action in relation to the relevant tax provisions
- carrying out the tax arrangements is not a reasonable course of action in relation to the relevant tax provisions
Source: GAAR Panel Redacted and sub-panel approved version of the Opinion Notice issued on 25 June 2018