HMRC wins £300k bonus tax avoidance case

HM Revenue and Customs (HMRC) has won a case that would have avoided nearly £160,000 in tax and national insurance (NI) contributions on an employee’s bonus.

The owner of a Cirencester-based pharmacy, LM Ferro, had received advice on how to extract value from the organisation in a tax-efficient manner.

Tax advisory firm Powrie Appleby, which is now owned by MacIntyre Hudson, devised a scheme that involved subscribing for shares in another organisation. Through the scheme, Ferro was paid a bonus of £300,000. 

Ferro’s case argued that the bonus amounted to an award of securities that was not subject to income tax, while HMRC argued that Ferro was rewarded with money and that the bonus is taxable as earnings.

The First Tier Tribunal ruled in HMRC’s favour that the scheme amounted to a bonus of money rather than shares.

The scheme would have avoided £115,113.18 in income tax and a further £42,263.79 in national insurance (NI) contributions.

Swami Raghavan, Tribunal Judge, said: “Our conclusion is the transactions that took place, when realistically appraised, amount to an artificial contrived scheme that’s essence was to pay money.

“The transaction, when viewed realistically, is one that it was the intention of Parliament to exclude from the regime.”

A spokesperson from HMRC added: “This decision confirmed HMRC’s view that these types of devices, to avoid tax, simply do not work.

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”If employers pay what is really a bonus, tax and national insurance contributions are due.

“HMRC expects those who used these schemes to make full payment of the tax and NI contributions due, plus interest.”