Budget Special: Payment in shares outlawed in bid to save pounds 110m

THE BUDGET AND YOU: Plugging tax loopholes

The Chancellor's crackdown on individuals delaying income tax and avoiding National Insurance contributions by being paid in shares in their own companies is the latest in a series of cat-and-mouse measures going back several years. It is estimated that this will produce tax savings of pounds 110m in 1997-98.

Since the late 1980s, when the cap on NI contributions was lifted, employers have sought to avoid liability to a tax that amounts to a tenth of pay- roll costs by paying staff in such "currencies" as unit trusts, gold, diamonds, platinum and fine wines.

Instead of introducing a general anti-avoidance provision, with exceptions where appropriate, the Government has merely blocked each loophole as it arises. Recently, employers and their advisers have sought more obscure methods in the effort to keep one step ahead of the authorities.

The Chancellor has long been known to be a proponent of attacking certain tax-planning schemes and yesterday he reiterated his adherence to a policy of making sure "we get the right tax from the right people".

There has been little effort so far to produce legislation cracking down on the NI avoidance schemes.

Among the latest moves to block loopholes are:

The tightening of capital gains tax rules so that individuals cannot roll over a taxable gain into a security that is not taxed. It is estimated that this will raise pounds 20m from completed transactions and prevent a much larger loss of tax in future.

The prevention of individuals and companies avoiding stamp duty through issuing foreign currency bearer shares, which are exempt from the duty, rather than issuing bearer shares denominated in sterling, which would normally attract a 1.5 per cent charge. It is estimated that this would raise pounds 50m a year.

Clarifying the position where individuals transfer assets abroad and are still able to benefit from the income arising from them. This is not expected to raise significant sums.

Richard Collier-Keywood of Coopers & Lybrand said the moves were a sensible reaction to recent developments. City advisers have been braced for a crackdown on schemes designed to reduce the tax paid on bonuses to bankers and other professionals.

The London Stock Exchange recently announced that bonuses paid by its member firms soared nearly pounds 100m to a record pounds 315m in the year to June.

The authorities have already been understood to be challenging one popular technique used by investment banks to avoid National Insurance contributions, by paying bonuses in the form of life policies that are subsequently cashed in.

Opinion in the financial services community is divided over the extent to which other organisations make payments into offshore accounts, especially since having money paid into such accounts carries no immediate tax advantages, on the grounds that it is where the recipient was based when earning it rather than where the money is paid that interests the Revenue.

Besides the payment-in-shares plans, some of the most popular tax avoidance schemes of recent years have been:

Bonuses paid in the form of life policies. They have been used by a small number of large investment banks over the past two to three years.

Pre-retirement employee benefit schemes (Prebs) paid into a discretionary trust set up by the company. Though officially no individual has any right to the money, in practice there is an agreement between the company and its executives that a slug of the money is theirs. The absence of a right over the money means that the executive does not pay tax until the fund is distributed, and if, in the words of one tax specialist, "they are retired and living on the Costa del Sol, they might not pay tax at all".

One variant of the Preb is the loan from a trust. Money can be lent from the trust to employees or their spouses.

Another variant is the loan against the offshore trust. Provided the employee can demonstrate that there are funds in the trust, and that there will be some form of distribution, a bank may grant a loan, and so allow an employee to gain income through having funds deposited offshore which are not immediately liable for tax.

PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Arts and Entertainment
Christian Grey cradles Ana in the Fifty Shades of Grey film
filmFifty Shades of Grey trailer provokes moral outrage in US
Life and Style
The veteran poverty campaigner Sir Bob Geldof issues a stark challenge to emerging economies at the Melbourne HIV/Aids conference
health
Arts and Entertainment
Benedict Cumberbatch and John Malkovich talk Penguins of Madagascar at Comic-Con
comic-con 2014Cumberbatch fans banned from asking about Sherlock at Comic-Con
Arts and Entertainment
Chris Pratt stars in Guardians of the Galaxy
filmGuardians Of The Galaxy should have taken itself a bit more seriously, writes Geoffrey Macnab
News
Sir Chris Hoy won six Olympic golds - in which four events?
news
Life and Style
People may feel that they're procrastinating by watching TV in the evening
life
Independent
Travel Shop
the manor
Up to 70% off luxury travel
on city breaks Find out more
santorini
Up to 70% off luxury travel
on chic beach resorts Find out more
sardina foodie
Up to 70% off luxury travel
on country retreats Find out more
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Trainee Recruitment Consultants - Banking & Finance

£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

Graduate Recruitment Resourcers - Banking Technologies

£18000 - £25000 per annum + OTE £40,000: SThree: Huxley Associates are looking...

Implementation Engineer

£150 - £200 per day: Orgtel: Implementation Engineer Hampshire / London (Gre...

Trainee Recruitment Consultant - Pharmacuetical

£20000 - £25000 per annum + OTE £40,000: SThree: Real Staffing, one of the UK'...

Day In a Page

Backhanders, bribery and abuses of power have soared in China as economy surges

Bribery and abuses of power soar in China

The bribery is fuelled by the surge in China's economy but the rules of corruption are subtle and unspoken, finds Evan Osnos, as he learns the dark arts from a master
Commonwealth Games 2014: Highland terriers stole the show at the opening ceremony

Highland terriers steal the show at opening ceremony

Gillian Orr explores why a dog loved by film stars and presidents is finally having its day
German art world rocked as artists use renowned fat sculpture to distil schnapps

Brewing the fat from artwork angers widow of sculptor

Part of Joseph Beuys' 1982 sculpture 'Fettecke' used to distil schnapps
BBC's The Secret History of Our Streets reveals a fascinating window into Britain's past

BBC takes viewers back down memory lane

The Secret History of Our Streets, which returns with three films looking at Scottish streets, is the inverse of Benefits Street - delivering warmth instead of cynicism
Joe, film review: Nicolas Cage delivers an astonishing performance in low budget drama

Nicolas Cage shines in low-budget drama Joe

Cage plays an ex-con in David Gordon Green's independent drama, which has been adapted from a novel by Larry Brown
How to make your own gourmet ice lollies, granitas, slushy cocktails and frozen yoghurt

Make your own ice lollies and frozen yoghurt

Think outside the cool box for this summer's tempting frozen treats
Ford Fiesta is UK's most popular car of all-time, with sales topping 4.1 million since 1976

Fiesta is UK's most popular car of all-time

Sales have topped 4.1 million since 1976. To celebrate this milestone, four Independent writers recall their Fiestas with pride
10 best reed diffusers

Heaven scent: 10 best reed diffusers

Keep your rooms smelling summery and fresh with one of these subtle but distinctive home fragrances that’ll last you months
Commonwealth Games 2014: Female boxers set to compete for first time

Female boxers set to compete at Commonwealth Games for first time

There’s no favourites and with no headguards anything could happen
Five things we’ve learned so far about Manchester United under Louis van Gaal

Five things we’ve learned so far about United under Van Gaal

It’s impossible to avoid the impression that the Dutch manager is playing to the gallery a little
Screwing your way to the top? Good for Lana Del Rey for helping kill that myth

Screwing your way to the top?

Good for Lana Del Rey for helping kill that myth, says Grace Dent
Will the young Britons fighting in Syria be allowed to return home and resume their lives?

Will Britons fighting in Syria be able to resume their lives?

Tony Blair's Terrorism Act 2006 has made it an offence to take part in military action abroad with a "political, ideological, religious or racial motive"
Beyoncé poses as Rosie the Riveter, the wartime poster girl who became a feminist pin-up

Beyoncé poses as Rosie the Riveter

The wartime poster girl became the ultimate American symbol of female empowerment
The quest to find the perfect pair of earphones: Are custom, 3D printed earbuds the solution?

The quest to find the perfect pair of earphones

Earphones don't fit properly, offer mediocre audio quality and can even be painful. So the quest to design the perfect pair is music to Seth Stevenson's ears
US Army's shooting star: Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform

Meet the US Army's shooting star

Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform