New guidance has been issued by HM Revenue & Customs concerning a recently discovered capital gains tax avoidance scheme.
HM Revenue & Customs has identified a scheme that attempts to exploit Entrepreneurs’ Relief by turning income into a capital gain, effectively allowing taxpayers to avoid paying income tax and National Insurance contributions.
The scheme operates by means of individuals selling the beneficial ownership of their company to, and taking up employment with, entities based in Cyprus.
Through the scheme they remain a director of their company and the company will continue to invoice for their services, even though their employment is now with the new entity in Cyprus.
Those promoting the scheme are advertising that it will reduce monthly payments by making them taxable as a capital gain at 10% using an Entrepreneurs’ Relief claim; rather than as employment income. It is claimed that the scheme is legal as it is a simple business transaction.
However, that is not the view of HM Revenue & Customs who say that the process involves a number of ‘artificial’ steps that are common in tax avoidance schemes.
HM Revenue & Customs has announced it will investigate the tax affairs of anyone who uses this scheme before they submit their tax return and will open enquiries into their activities and seek full payment of the tax due, plus interest and any penalties where appropriate.