The General Anti-Abuse Rule (GAAR) advisory panel has ruled that it is not a reasonable course of action for organisations to reward their employees using gold bullion in order to avoid remuneration-associated tax payments.
The GAAR advisory panel, which is an independent body within HM Revenue and Customs (HMRC) that deals with tax evasion and avoidance schemes, found that the only reason why employers would pay employees using gold bullion is to avoid tax payments, such as income tax charges, national insurance contribution (NIC) charges, and remuneration charges, including the associated PAYE and NIC charges. Using gold instead of cash for employee pay could also lead to a corporate tax deduction.
The panel’s decision, published in an opinion notice on 3 August 2017, relates to the case of an organisation that sought to structure its reward so that it would not constitute remuneration, thereby avoiding the associated tax payments. The organisation in question rewarded its staff, referred to as Mr X and Mrs Y, by purchasing gold using organisation funds. The gold was immediately sold by the employees and payment with the gold provider settled by the employees in return for a director’s loan account credit in favour of the employees. Furthermore, a long-term obligation was created under which the employees were required in the future to pay the trustees of an employee benefits trust (EBT) an amount at least equal to the purchase price of the gold, plus indexation.
The amount of gold in this case is worth approximately £300,000. HMRC maintains that there is no evidence to suggest that the employees’ commitment to fund the EBT will be met or that the obligation is genuine. The organisation and employees disagree with this viewpoint.
The advisory panel said: “In our view the steps in this case involving gold are abnormal and contrived.
“It is not abnormal for an employer to establish an employee benefit trust. The scheme of legislation for employee benefits recognises employers have a choice as to whether to reward employees direct or via an employee benefits trust. It is, however, abnormal for the obligation to fund an employer-established employee benefit trust to be fulfilled by its key employees.
“In this case we can see no reason, other than for tax purposes, for the steps involving the EBT to include the assumption by the employees of the [organisation’s] trust funding obligation. Had the EBT been funded in the normal way by the [organisation] and the trustees lent funds to the employees, none of the [organisation], the employees or the EBT would have been in a substantially different economic or commercial position.
“We are of the view that, taken together, the steps involving the EBT are abnormal and contrived.”
In light of this decision, HMRC will be able to take action against employees and organisations who look to take advantage of gold bullion schemes.
Andrew Constable, tax partner at accountancy firm Kingston Smith, said: “The GAAR was designed to hit the parts of the tax avoidance industry that other measures couldn’t reach; it has now started to earn its place in HMRC’s armoury. This decision against payments using gold will allow the taxman to use these provisions of last resort. It shows that GAAR has teeth. Anyone seeking to exploit loopholes in the tax legislation should mark and learn.”