HMRC is going after overseas residents after it was found they were using a similar tax avoidance scheme similar to the one used by Glasgow-based football club, Rangers.
The scheme uses Employee Benefit Trusts (EBTs), to pay out tax-free loans on the basis that the money will ultimately be paid back.
The UK Supreme Court ruled in 2017 that those loans actually constituted earnings and bonuses that should have been taxed accordingly.
In that case more than £47m ($60m, €53m) was paid to players, managers and directors between 2001 and 2010 in tax-free loans using EBTs in Jersey.
Offshore obsession, is it worth it?
However, many contest that HM Revenue and Custom’s (HMRC) pursuit of offshore tax avoidance could outweigh the possible benefits.
“HMRC’s actions highlight the mass usage of offshore umbrella structures,” said Miles Dean, managing partner of Milestone International Tax.
“Many of the individuals concerned would have assumed that their affairs were in order and that by using the scheme in question they would avoid UK tax – particularly once leaving the UK.
“However, international tax treaties and directives give the UK authorities the power to ask counterparts to assist in the recovery of UK tax due.
“The big question is whether the foreign authorities in Australia and New Zealand would be minded to help the UK in respect of such large numbers of cases, especially when these may be relatively small in terms of cash sums” Dean added.
Hilesh Chavda, private wealth partner at law firm Royds Withy King, told International Adviser it was “not surprising” that HMRC was focusing on overseas residents.
“It may well be a trend we continue to see in light of significant measures that have recently been introduced giving tax authorities access to overseas taxpayers’ affairs.”
Tax needs to be paid
However, Rachael Griffin, tax and financial planning expert at Quilter, told IA that this does not mean people don’t have to pay UK tax.
“While it can be extremely difficult to recoup unpaid tax if someone moves abroad, this should not be used by people as a get out clause for not paying any due tax. Although there a number of international agreements which do allow a country to enforce another country’s tax debts, utilising them can eat up both time and money.
“Regardless of the difficulty of the process, these people should be pursued. If we take a laissez faire approach to this issue it might give people the wrong impression that if they no longer live in the UK, they don’t have to pay UK tax.”
