Contractor ‘offshore loan schemes’

We have long been advising clients to avoid these schemes, which were similar in structure to the notorious offshore Employee Benefit Trusts, so beloved of footballers, amongst others.

Here’s what HMRC have to say about their latest victory:

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Update on Contractor Loan tax avoidance schemes

The First-tier Tribunal comprehensively and robustly dismissed all the arguments put forward by an IT contractor to persuade them that his contractor loan tax avoidance scheme worked and the money he received was not taxable. In Philip Boyle v HMRC (Opens new window) the tax tribunal judge decided that the money paid over to Mr Boyle as loans was ‘in substance and reality income from his employment’ and therefore taxable.

This tax tribunal decision means that the contractor has to pay tax on the loans.

Mr Boyle argued that if he had received income from his employment, it should have been taxed under PAYE by the offshore company and that he should not have to pay. The judge dismissed that argument as well. She also decided that even if the money Mr Boyle received under the scheme was not income from employment, he would still have to pay tax as a result of specific rules to prevent tax avoidance known as the ‘Transfer of Assets Abroad’ rules.

Find more information on the tax tribunal decision (Opens new window)

Tax avoidance scheme promoters sold contractor loan schemes with a variety of different features but they all involved individuals signing an employment contract with an offshore company and receiving a large proportion of their income in the form of a ‘loan’ from their employer – either directly or through an intermediary. In September 2013 we said that we were challenging these schemes. Many people have received tax assessments, or letters opening enquiries, and we are continuing to issue more and to pursue the tax which should be paid.