A court judgment could see company directors and shareholders pursued for millions of pounds for funds paid into tax avoidance schemes.
The ruling, handed down by Chief Insolvency and Companies Court Judge Briggs, will see the directors and shareholders of Implement Consulting having to pay back over £3m to the company and its creditors, despite it being placed into liquidation in 2016.
The case was brought by liquidators CVR Global, who were assisted by solicitors Ashfords and barrister Joe Curl. The liquidators successfully argued that the funds placed into Employee Benefit Trusts (EBTs) were effectively dividends by another name and, as such, were taxable.
In EBTs, a trust is set up in a low-tax jurisdiction, into which employees’ wages are initially paid, before then being paid to the employees in the form of a long-term loan and therefore not taxed.
HM Revenue & Customs fought a long-running case through the courts over Glasgow Rangers FC’s use of such a scheme. In 2017, it was found that money paid into an EBT was intended to operate to give each employee access to the use of the money paid into the principal trust. The money was to be treated as employee’s remuneration for employment, and subject to tax.
The latest judgment could lead to further litigation of EBT-type claims and could to lead to millions of pounds being recovered for creditors.
Richard Toone, liquidator, of CVR Global, said: “This judgment shows what HMRC has maintained all along – that EBTs didn’t work and this landmark ruling could mean many more cases being pursued against the directors and shareholders of insolvent firms.
“Some may have thought that monies paid into EBT-type schemes would not become an obligation on the individuals. This judgment shows the directors and shareholders are at real risk of being pursued for repayment.
“This judgment will have major implications for the insolvency industry because the decision provides new case law which can be followed on other cases.’’
The Turnaround, Restructuring and Insolvency (TRI) Conference takes place on November 13 at the London Hilton Bankside. Visit its site to view the agenda and book your place.