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The anatomy of a share bonus – don’t get caught out by HMRC’s latest Spotlight

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6 November 2013
We here at Hazlewoods are often asked to design  and  implement employee share scheme arrangements – they can deliver a welcome increase in your employees’ overall remuneration without inflating your wages bill. While HMRC have a list of approved schemes which they are comfortable with, they also have an aversion to what they consider to be artificial arrangements. As you’d expect, this is a moving feast and the latest on this distinction comes in the form of a Tribunal case decision highlighted this week by HMRC in their Spotlight series on tax avoidance.
 
The case involves an attempt to avoid tax and National Insurance contributions on employee bonuses. In LM Ferro Ltd v HMRC a bonus was paid in the form of an award of shares. HMRC’s view is that ‘the decision confirmed HMRC's view that these types of devices to avoid tax simply do not work - if you pay what is really a bonus, tax and National Insurance contributions are due no matter how it is dressed it up.’
 
HMRC considers cash received by beneficiaries of awards in those schemes is also chargeable to Income Tax and National Insurance contributions. They have said they expect those affected to make full payment of the tax and National Insurance contributions due, plus interest and warn that penalties may be charged if you failed to take reasonable care when making returns to HMRC.
 
We say, consider doing the following:
  • If you have recently been involved in this type of planning speak to your tax advisors or Nick Haines here at Hazlewoods
  • Gather the facts together ad determine your potential exposure before any approach to HMRC is made
  • If you were about to make a similar payment, don’t! Speak to your tax advisor before you do anything
  • It is likely that share issues as staff remuneration will be considered a risk factor by HMRC when determining who they should make further enquiries into. If you want to understand what such a visit could mean in practical terms we can prepare you by running through the areas HMRC are likely to be interested in and assessing your current levels of compliance.