'Highly contrived' annuity-based remuneration schemes 'do not work', says HMRC
Thursday, 16 February, 2017
HM Revenue & Customs (HMRC) has issued new guidance to employers who are paying staff or contractors with private annuities in order to avoid income tax and national insurance contributions (NICs).
The annuity schemes amount to a form of disguised remuneration. The contractor is paid in two parts, one of which is a small salary below the tax and NICs threshold. The other part is a capital payment for a deferred annuity, which the scheme promoters claim is thereby non-taxable.
The user agrees to pay the promoter an income under the annuity, from a date of their choosing.
However, HMRC says the 'highly contrived' schemes do not work. It regards them as coming within the scope of the new loan charge that will apply to all disguised remuneration loans that are still outstanding on 5 April 2019. This loan charge was introduced in the Finance Bill 2016 to combat contractor loan schemes and some employee benefit trust schemes, but HMRC believes it can also be used against annuity schemes.
Furthermore, HMRC may consider whether the new General Anti-Abuse Rule (GAAR) applies to transactions that took place after 16 July 2013, when the GAAR legislation came into force. Any such transactions made after 14 September 2016, when the 60 per cent GAAR penalty was introduced, may be subject to that extra charge.
HMRC is urging any users of the annuity schemes to settle their tax situation as soon as possible. Those who do not, HMRC warns, may have to pay additional tax and interest on the outstanding disguised remuneration loans and could also receive a penalty.