Loophole could mean more bonuses in gold

The City practice of paying bonuses to top earners in gold bullion could be set to return after a tax consultancy claimed to have found a loophole in the law regulating National Insurance contributions.

The new scheme has been launched as the Government starts a fresh clampdown on tax avoidance, particularly schemes involving payments in kind. The new get-tough policy follows government moves which have already outlawed payments in gold, diamonds and fine wines, as well as rare metals such as rhodium and platinum.

However, some companies have continued to avoid National Insurance payments by paying bonuses in antiques and oriental carpets.

The Groucho Plan, launched by Croxtons this week, avoids National Insurance contributions by paying bonuses as "liquidated damages in advance". Though the consultancy is vague on details, the payments appear similar to "golden handcuffs" deals under which an employee is promised a lump sum for loyalty if he or she stays with the company for a certain duration. Under Croxtons' scheme, that payment is made in advance instead of at the end of the period. It is offering payments in gold and unit trusts.

The Groucho Plan is promoted as "the plan that shoots holes in all others" and its literature is festooned with illustrations of the Marx bothers as well as several former Chancellors. These include Kenneth Clarke dressed as Father Christmas.

Michael Davey, Croxtons' managing director, says he stumbled on the loophole while working on another tax case but claims it is perfectly legal. "No plan we have devised has ever been challenged," he says.

The scheme seems certain to arouse the interest of the Inland Revenue and Department of Social Security, which are taking an increasingly hard line on such measures.

Over the last month both agencies have been writing to companies that have used these methods to determine whether or not the carpets or stamps ever really existed or if they were merely a ruse to avoid National Insurance. If such proof is not forthcoming the companies could be liable to payments at 10.2 per cent.

According to Jim Yuill at accountants Ernst & Young, the move will catch out many companies which thought they had reduced their tax liability. "An awful lot of companies are going to get their fingers burned."