HMRC stalks Sanzar loan scheme contractors
A new batch of contractors who freelanced in the UK via offshore vehicles are being approached by HM Revenue & Customs, which is hitting them with UK income tax assessments designed to boost its low yield from such Employee Benefit Trusts.
Although HMRC declined to comment on individual cases, two advisers have confirmed that tax assessments between 2008 and 2011 are being received by UK-based contractors, owing to their use of an EBT from Sanzar Solutions.
A spokesman for HMRC told ContractorUK: "There are a number of arrangements where contractors have sought to receive their income in the form of loans, in an attempt to reduce their tax in this way and gain an unfair advantage over others."
The Revenue letters, said on its website to be reaching contractors over the next few months, tell recipients: “The [assessed] sum arose from tax avoidance arrangements you entered into with The Sanzar Solutions IOM Partnership, a company sited outside of the UK.
“Although described as loans, [HMRC] believe that these sums related to your professional work in the UK and are taxable income, either as such or under long-stand standing anti-avoidance rules.”
Under the scheme, and its variants, contractors would assign their UK-based contract to the offshore provider which would pay them a low, fixed-salary, leaving the bulk of their fees to be paid out as a loan.
Although the loans were properly reported as a benefit-in-kind, the tax paid on the beneficial loan interest by the contractors was miniscule when compared with the monies that ordinarily would have gone to HMRC.
Further tax was bypassed because the loans would not be written off, nor was there any intention for the loan to be repaid by the contractors, serving to explain HMRC’s expression of doubt in its assessment letter that the monies qualify as loans.
Those contractors in receipt of the taxman’s letter can either accept the assessment (thereby agreeing to pay the tax), or, as the majority are expected to do, lodge an appeal against it within 30 days from the issue date.
But as tax investigation specialists have warned, even if a contractor appeals, the taxes remain payable unless the contractor uses the form enclosed with the assessment to request a postponement of payment until the appeal is settled.
Another warning was sounded by Qdos Consulting: “Although HMRC does not actually provide any justification for their decision in their letters…should a contractor’s appeal be unsuccessful, and that tax found to be payable, a surcharge of 5% will be levied”.
The firm’s Andy Vessey added: “An additional 5% surcharge is imposed where the tax remains unpaid effectively seven months after the date of the assessment. This is on top of the interest charged on late paid tax.”
Meanwhile, contractors have been reminded that paying an assessment for a single year does not prevent the taxman coming backing for more, assuming that they participated in similar EBT-style arrangements in other years.
Mark Boardman, an adviser with Tax Talk UK has told CUK: “HMRC’s ability to assess other years will be determined by the normal rules of assessing. They can go back four years in any normal situation but up to twenty years in some circumstances.”
The Revenue spokesman reflected: “HMRC will tackle avoidance wherever it arises and we will use the full range of tax legislation, including specific anti-avoidance rules, to challenge these schemes.”