GAAR Advisory Panel of 11 May 2021 published relating to rewards in the form of loans for employees including contributions to a trust

The General Anti Abuse Rule (GAAR) Advisory Panel has published an opinion dated 11 May 2021 in which it concluded that arrangements designed to avoid employment taxation of payments to directors while securing a corporation tax deduction for their employing company was not a reasonable course of action.

It was noted that the arrangements strongly resembled previously considered cases, particularly one covered by the Panel's opinion of 7 April 2020.  Briefly, the company in question, which was owned by its two directors, made significant contributions to an offshore trust and the trust then made loans to the directors.  Small loans were also made by the directors to the trust which were said to be a moneylending activity that broke the link between their employment and the loans they received from the trust.  This breaking of that connection was essential to the intended tax benefits as it meant:

• no charge arose under Part 7A of ITEPA 2003 so the funds received by the directors (via the loans) were not subject to income tax or National Insurance contributions; and
• sections 1290 to 1292 of CTA 2009 did not apply so the company could claim an immediate a corporation tax deduction in respect of the contributions made to the trust.

The Panel found that the arrangements as a whole were contrived and abnormal appearing to serve no purpose other than tax avoidance, noting in particular, that the substantial contributions from the company to the trust lacked any clear benefit to its trade and certain features of the loan arrangements seemed contrived.

The Panel's decision is unsurprising given the similarities to the arrangement covered by the Panel's previous opinion.  It is a helpful reminder that the GAAR Panel is not likely to accept contrived, "circular" arrangements.