Enter Your E-mail

HMRC has today announced an invitation to 'settle' outstanding enquiries as part of its strategy to deal with 'Disguised Remuneration' - very broadly, using vehicles such as Employee Benefit Trusts to hold funds in favour of employees so that those employees may derive some benefit from those funds without incurring PAYE and NIC charges.

The basis of this new Settlement Initiative echoes Dave Hartnett's Guest Editorial on TaxationWeb earlier this week, wherein he said,

"Our litigation and settlement strategy seeks to apply a highly transparent framework within which decisions can be made as to whether to litigate or settle tax disputes. This approach is designed to maximise tax flows to the Exchequer whilst freeing HMRC and taxpayers from interminable and highly marginal negotiations. 

When it comes to settling tax disputes, we will fight to the death when a well understood principle appears to be at stake. In cases that are less clear-cut, we are committed to a more collaborative approach to resolving disputes so that we can maximise the revenues that are due under law, whilst reducing costs to ourselves and business."

So, on the one hand, this could be seen as an opportunity for both sides to come to an 'amicable' arrangement without resorting to litigation that would cost both the taxpayer and HMRC (and therefore 'the taxpayer' again!) significant sums.

On the other hand, the cynical tax practitioner/taxpayer might wonder just exactly how confident is HMRC that it would win if these cases were taken all the way through the courts? HMRC doesn't exactly have a perfect track record when it comes to EBTs and PAYE and some might decide that HMRC is being overly optimistic. What happens to any settlement agreed, if HMRC subsequently takes other cases to litigation and loses?

(And on the other hand, what happened to the policy of litigating where there was 'more than a 50% chance of winning'?)

Bearing in mind how widely the new legislation has been drafted - excluding MPs of course - it might be tempting for the courts to interpret as narrowly as possible, and HMRC could then find itself on the wrong side of such a decision.

It seems likely that at least some taxpayers and their advisers will be sufficiently confident in their own particular arrangements that a percentage of cases will end up in court. To their credit, HMRC has put no deadline on this incentive, but they have also said that they will look to progress enquiries formally where taxpayers haven't 'signed up' by 31 December. Which may simply be an incentive to 'do nothing', at least for a while!

For further details on the settlement initiative, see Employee Benefit Trusts, Settlement Opportunity