Gold Bullion Tax Avoidance Scheme Was Earnings Says Tax Tribunal

Overview Of Gold Bullion Tax Avoidance Schemes

Frankie Valli wasn’t referring to a gold bullion tax avoidance scheme when he belted out:

You’re just too good to be true

HMRC however was in its Spotlight 30 issued on 6 May 2016.

HMRC Gold Bullion Spotlight 30

HMRC does not agree that gold bullion tax avoidance schemes work and the Gold bullion schemes (Spotlight 30) said:

These schemes seek to disguise remuneration to individuals through paying them via a series of transactions buying and selling an asset, commonly gold bullion.

There are a few of these schemes but they have a common feature where an individual claims to be paid in the form of an asset, such as gold bullion. They have a theoretical obligation to pay the value of the asset to a trust at some point in the future – it is claimed that this obligation makes the payment non-taxable. However, in instances seen by HM Revenue and Customs (HMRC) so far, the individual has actually taken cash, thus supporting HMRC view this is a payment of earnings.

Creating Credits To The Directors’ Loan Accounts

This post is essentially about a gold bullion tax avoidance scheme that created credits to the two Directors’ Loan Accounts. 

The case surfaced from a judgment unveiled on 6 January 2023, Wired Orthodontics Limited v HMRC [2023] UKFTT 17 (TC). This was a tax avoidance case involving both gold bullion and an Employee Benefit Trust.

The Gold Bullion Tax Avoidance Scheme

The Directors were awarded £300,000 of gold bullion by Wired Orthodontics Limited (“the Company”).

The Company entered into an agreement to purchase £300,000 of gold bullion and the Directors in effect almost immediately sold it and then settled the Company’s obligation to Asset Hound Limited (“AHL”) that dealt with the purchase and sale of the gold. Once the gold was sold by the Directors the proceeds were used to pay AHL and then credited to the Directors’ loan accounts in the sum of around £300,000 from which cash drawings could be offset. These transactions took place in October 2014.

Obligation To Make Future Payment To The Employee Benefit Trust

This was done against the backdrop of the Directors entering into an obligation to pay £300,000 to the Employee Benefit Trust 10 years later in 2024. This it was suggested gave rise to the award being non-taxable. 

However, the Tax Tribunal said:

… we have concluded that the stated intention to pay the £300,000 (plus RPI) to the Trust in 2024 was based on the understanding that the Directors would in some way be able to access those funds again when “recycled” by the Trust.  We recognise that at that point there is the potential for a tax charge on the payment of the money’s to the Directors, but the extent of that tax will depend upon the way in which the money’s are provided and the amounts provided in any particular tax year.

The Tax Tribunal said the receipt of gold by the Directors was in effect earnings. It appears they sought to convert the sale of the gold into Directors’ loan account credits from which cash could be drawn against:

199. In this case the employees, the Directors, have received money or money’s worth either in the form of the gold initially or in the form of the cash received by them; and the obligation to pay the Trust does not (in contrast to the position in Rangers) give rise to a loan.  Considering the reasoning in the Supreme Court, we agree with Mr Tolley that there is little basis to conclude that the transactions in the Rangers case should be treated as giving rise to earnings and those in this case as not doing so.  Ultimately, that is because, just as in Rangers, we are satisfied that the money or money’s worth received by the Directors was a reward for their services as employees of the Company. When we stand back and look at the “composite effect” of the Scheme as required by Rangers, we find cash paid to the Directors as a reward for their services.

200. We have reached the conclusion that the Directors received a reward for their services because of the evidence overall (including that of the Appellants’ expert accountant viewing the amount as such); and our findings that:

(1)          this was one of the drivers of the Scheme described to us by the Directors themselves and reflected in the Scheme documentation, in particular, the Company board minutes referring to the arrangements as a reward to certain employees;

(2)          there were not alternative drivers of incentivisation of themselves and other employees;

(3)          the stated intention to pay the £300,000 (plus RPI) to the Trust was based on the understanding that the Directors would in some way be able to access those funds again when “recycled” by the Trust, thereby providing what Ms Bessant described as a “pension pot”;

(4)          the Directors received no other reward for their services in contrast to the position in the years prior to implementation of the Scheme.

201. We are therefore satisfied that the Directors received money or money’s worth of £300,000 when awarded the gold which was received from their employer, the Company, as a reward for their services.  That money or money’s worth is therefore “earnings” under s62 ITEPA.   There is no allowable deduction under ss327(3)-(5) ITEPA which would reduce the amount of that money or money’s worth when calculating the net taxable earnings of the Directors.

Oliver Elliot Observation

If you are thinking about entering into a gold bullion tax avoidance scheme in the future perhaps the following salutary warning in HMRC Spotlight 30 may warrant careful consideration:

If the scheme looks too good to be true, it almost certainly is: being paid in gold bullion is clearly extremely unusual and should be a warning to anyone looking at this kind of scheme not to get involved.

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Disclaimer: Gold Bullion Tax Avoidance Scheme Was Earnings Says Tax Tribunal

This page is not legal advice and should not be relied upon as such. This article Gold Bullion Tax Avoidance Scheme Was Earnings Says Tax Tribunal is provided for information purposes only. You can contact us on the specific facts of your case to obtain relevant advice via a Free Initial Consultation.

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