HMRC condemns tax avoidance agreements with revenue service trusts

With the release of its guidance “Disguised remuneration: tax avoidance by selling future business revenues to a revenue service trust”, Her Majesty’s Revenues and Customs (HMRC) recently seeked to warn the public from entering specific kind of agreements with offshore “revenue-service” trustees.

These agreements regard the sale of the right of a percentage of future revenue to the offshore trust, which will be paid to it in a future date, thus excluding that revenue from the taxable profits of the first party.

The first party in this case could be:

  • A self-employed individual
  • A partner in a partnership
  • A company
  • A company director

After the revenue has been transferred (and after the trust will have deducted a fee for the promoter of the arrangement), the trust will either:

  • transfer the revenue to a personal management company controlled by the business owner;
  • send the revenue from the trust to the business owner in the form of a loan, so that no tax is paid on it.

HMRC is condemning these disguised remuneration arrangements and will challenge promoters and investigate the tax affairs of those using such agreements, with the threat of charging additional tax liabilities, interest on unpaid tax and initiating criminal prosecution.