A recent tax case highlighted HMRC’s hard stance on tax avoidance. A PAYE savings arrangement had been undertaken by the main holding company that involved a further two group companies trading and hence paying corporation tax.
The tribunals found that money had merely flowed through the new companies, which were ciphers or agents for the main trading company. There never was any trade in either company; the money was employees’ remuneration. PAYE was held to be due by the main trading company and it sought an offset for the corporation tax paid by the other companies.
The Tribunal accepted that the group companies were ciphers and had no substance but it did not accept that their payments of corporation tax had been made as agents or bare trustees. Although the funds came from the trading company pot, they could not be treated as the same money; by diverting the money to the other companies, the funds acquired different characteristics.
The Tribunal had no power to direct HMRC to set off or credit the corporation tax paid by Services and Retail against PAYE assessments. HMRC chose not to do so voluntarily.
The potential cost of failed planning needs to be very carefully considered in this climate.
Date: 3rd July, 2017
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