HMRC wins disguised remuneration tax avoidance case

The Court of Appeal has found in favour of HMRC that Mr Hoey was liable to pay the tax in his income in ‘Stephen Hoey and others v HMRC’ (13th May 2022).

HMRC welcomed the Court of Appeal decision, which confirms that this kind of tax avoidance scheme does not work. Tax avoidance deprives the nation of funds to pay for vital public services and is considered unfair to the majority of taxpayers who pay their tax. HMRC will always take action to tackle tax avoidance, including challenging schemes in court.

Mr Hoey was an IT contractor who used a disguised remuneration (DR) tax avoidance scheme, entering into an arrangement whereby he worked through an umbrella company based outside the UK to provide his services to UK-based financial service companies.

Most of his earnings were received in the form of loans, organised by the umbrella company, which were initially claimed not to be taxable. HMRC claims that these schemes do not work and the loans received are taxable as income.

Mr Hoey eventually accepted that he had received taxable income but claimed he should not have to pay anything because he was entitled to a notional PAYE credit. The UK-based companies that engaged him had no knowledge of the avoidance arrangements he had entered into, nor of any requirement to operate PAYE.

The Court of Appeal’s found that Mr Hoey was not entitled to a PAYE credit and confirmed HMRC’s position in collecting tax from taxpayers where they enter into these types of convoluted arrangements.

HMRC state to others who have entered into similar arrangements:- “If you are involved in a tax avoidance scheme, or think you might be but are unsure, you should contact us [HMRC] as quickly as possible. We’ll help you get out of it and settle your tax affairs. The longer you leave it the bigger the tax bill. Our job is to help get you back on the right track. If you can’t afford to pay everything in one go, we may be able to offer you an instalment arrangement”.

Those impacted can settle under the Disguised remuneration settlement terms 2020. These terms and the opportunity to spread payments over a number of years are still available for anyone wishing to settle their disguised remuneration liabilities. This includes people who received loans before 9th December 2010, where HMRC still has open enquiries or assessments.

PAYadvice.UK 21/5/2022

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