HM Revenue and Customs (HMRC) have issued Spotlight 68 which provides information on a tax avoidance scheme being marketed to companies that aims to reduce Corporation Tax and VAT liabilities whilst also claiming to provide non-taxable income for directors, their associates or both.
This avoidance scheme is claimed to operate by:
- a company buying ‘advertising’ from the scheme. This expenditure is included in the profit and loss account of the user. It is claimed this is tax deductible
- an amount often equal to at least 80% of the amount spent on ‘marketing’ is then returned to directors or employees in the form of “loyalty points” which are converted to monetary amounts and charged to prepaid cards
- the recipients of these cards then spend the amounts on these cards as they wish — it is claimed that the “loyalty points” are not taxable income
Businesses who are involved or being approached to join such a scheme should be alert to the details contained in Spotlight 68 as it is HMRC’s view that this scheme does not work, and they will challenge anyone promoting such arrangements. People who use these arrangements may have to pay more than the tax they tried to avoid as well as paying interest, penalties and high fees for using such schemes.
If you think you or your business is already involved in this type of arrangement and want to get out, HMRC say they can help. HMRC offers a range of support to get back on track or avoid being caught. Contact HMRC for advice on getting out of an avoidance scheme if you have any concerns.
You can report tax fraud and tax avoidance arrangements, schemes and the person offering you them to HMRC by using our online form to report tax fraud.
Why you should not use these arrangements
Receiving and redeeming loyalty points provided by third parties involved in this arrangement is taxable income for the directors. These amounts should be accounted for as income of the director.
Corporation Tax deductions claimed by the companies may also not be an allowable expense for tax purposes because they are not wholly and exclusively for the purpose of the business.
There could also be implications for the limited companies if they have reclaimed VAT incurred in relation to the use of this scheme as input tax, as it may not be recoverable.
This spotlight does not include the benefits an employee may acquire in the same way as any other member of the general public, for instance air miles, petrol tokens or credit card points acquired by buying goods or service on which such benefits are given.
You can find out more in the HMRC Employment Income internal manual at EIM21618 — Particular benefits: air miles, credit card points etc.
PAYadvice.UK 16/5/2025