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We've been working with a number of clients who have been seeking to settle these EBT specific arrangements with HMRC. We were recently informed by HMRC that they were unable to discuss any potential terms of settlement as these arrangements were subject to an 'internal review'. When we pressed for further information about the nature of this internal review we were given an unusually unhelpful and vague response which, based on our extensive experience of engaging with HMRC, we did not see as a necessarily positive development.
Our experience suggests that when an inspector is unable (or unwilling) to provide information relating to how an enquiry or investigation (of any type) is to be progressed, it can mean that the file has been referred within HMRC for consideration of a different approach. This can, depending on the circumstances, include moving towards litigation or issuing a different code of practice (e.g. Code of Practice 9 or 8).
After a period of silence, we've recently become aware of clients receiving detailed information requests from HMRC in connection with these arrangements. The nature of the information being requested suggests that HMRC is trying to understand the decision making process adopted by the company and what information and advice the director's received when making their decision to, for example, accept the executive reward recommendations of HERS. T
The nature of the questions being asked could suggest that HMRC may be seeking to argue that the arrangements lacked real substance. It could also suggest that HMRC is gathering information in order to make a decision on whether to continue with the enquiries under a different Code of Practice.
Questions your client should consider before responding to these requests include:
- Why does HMRC consider that some of the information requested to be relevant to the underlying tax liabilities usually alleged in EBT type arrangements (i.e. that PAYE/NIC is due on any distributions or loans made by the trust)?
- More fundamentally, why is this information being requested at this stage and what relevance does it have to the 'internal review' being undertaken by HMRC?
If your client has received an information request care should be taken in how you respond and the factual basis of any responses provided to HMRC.
If you would like to discuss these issues and how you might respond, please get in touch. We have extensive experience of managing information requests and a detailed knowledge of HMRCs information powers.