Taxation – Revenue clamps down on employee trusts

The Inland Revenue has clamped down on a string of employee trust schemes involving a leading tax advisor, sparking fears of a wider curb on the use of trusts.

Accountancy Age has learned that the Inland Revenue compliance division’s special investigations unit is contesting deductions made for the corporation tax relief on up to four employee trust schemes set up by Paul Baxendale-Walker, a solicitor and ex-Arthur Andersen tax specialist.

The Revenue accepts companies can set up bona fide commercial trusts to benefit employees through shares or bonuses, but has become increasingly hostile to trusts set up purely for tax reasons.

One of the schemes under investigation, for a small Midlands company, is believed to involve #400,000. The Revenue is understood to be disputing a deduction of #110,000.

Baxendale-Walker admitted three remuneration cases, including one offshore trust scheme, were being investigated by the Revenue, but denied any knowledge of an investigation into the Midlands company and stressed his firm had only a temporary advisory role at the company.

One Group A tax expert said the action against Baxendale-Walker could signal a tougher stance by the Revenue against the more ‘aggressive’ of the offshore schemes.

Anne Redston, a tax partner at Ernst & Young said: ‘The Revenue is nervous about smaller schemes because the scope for abuse is greater.’

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