HMRC invokes GAAR to clamp down on gold bullion tax avoidance schemes

Paying employees in gold bullions to avoid tax will not be permitted under the first use of the general anti-abuse rule (GAAR).

The GAAR advisory panel stated that the use of gold as payments for employees is “abnormal and contrived” and “not a reasonable course of action”. “We can see no reason for the steps to involve gold, other than for tax purposes”, they added.

The panel described these schemes as a “clear case of associated taxpayers seeking to frustrate the intent of parliament by identifying potential loopholes in complex interlinking anti-avoidance legislation”.

An HMRC spokesperson said: “We’re delighted with the opinion of the GAAR Advisory Panel. HMRC has already made clear that gold bullion avoidance schemes don’t work and that we will challenge these schemes. This result has wide-reaching impacts and reinforces the power of the GAAR in tackling abusive tax avoidance.”

How are gold bullions used to avoid tax?

The use of gold bullions by companies to avoid tax is complex and convoluted.  Some companies have sought to do this through schemes that disguise employee remuneration through a series of transactions of buying and selling an asset, in this case gold bullion. Employees are given a reward which is “subject to contractual obligations to the EBT akin to those of a loan repayment”, but HMRC argue that the alchemy that results in this position is contrived and abnormal, and so contest it being non-taxable. The company may also seek a corporation tax deduction for the recorded expense. HMRC claimed that usually the individual takes cash, which supports the view that in essence this is simply a “payment of earnings”.

The response said: “HMRC’s position is that the company and the employees seek to avoid a charge to income tax and the associated NICs charge on the funds made available to them.”

Why invoke the GAAR?

The GAAR was introduced by former chancellor George Osborne in 2013 in an effort to crack down on tax avoidance, which Osborne labelled “morally repugnant”. Where there are loopholes that allow companies and individuals to avoid tax, the GAAR acts as a blanket rule to identify abusive tax avoidance arrangements that are deemed “unreasonable”. This is the first time the GAAR has been implemented since its introduction.

HMRC’s decision to apply the GAAR was somewhat surprising to some, as it is not clear that it was necessary to invoke in this case.

Colin Ben-Nathan, tax partner at KPMG, and chair of employment taxes sub-committee at the Chartered Institute of Taxation explained: “For many years there have been rules which prevent the payment of salaries and bonuses in the form of gold bullion and so it is surprising to see a scheme like this these days”, pointing specifically to the rules on readily convertible assets and the disguised remuneration rules of 2011, among others.

He added that the invoking of the GAAR “does not necessarily mean that HMRC felt they did not have other means at their disposal” or that HMRC “are accepting that the arrangements succeed absent of the GAAR”.

Instead, Ben-Nathan suspects this decision was made as HMRC want to “engage with the GAAR panel”. Indeed, any future appeals made by the individuals would be heard by a tribunal and no doubt HMRC would deploy other arguments as well.  Another possible reason for the engagement of the GAAR is “to message more publicly the power of the GAAR and the sort of things it’s likely to capture”, so emphasising the government’s moves to clampdown on tax avoidance schemes.

Undoubtedly, HMRC will be pleased with the response of the GAAR panel.


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