HMRC wins disguised remuneration tax avoidance case

The court ruled in favour of HMRC that Stephen Hoey was liable to pay the tax on his income in “Stephen Hoey and others v HMRC”.

Mr Hoey was an IT contractor. He used a disguised remuneration (DR) tax avoidance scheme, entering into an arrangement whereby he worked through an umbrella company based outside the UK to provide his services to UK-based financial service companies.

He received most of his earnings in the form of loans, organised by the umbrella company, which were initially claimed not to be taxable. HMRC is clear that these schemes do not work and the loans received are taxable as income.

Mr Hoey eventually accepted that he had received taxable income but he claimed he should not have to pay anything because he was entitled to a notional PAYE credit. There was no evidence that the UK-based companies that engaged him had any knowledge of the tax avoidance arrangements that he had entered into, nor of any requirement to operate PAYE.

The Court of Appeal’s finding that Mr Hoey was not entitled to a PAYE credit confirms HMRC’s position in collecting tax from taxpayers in cases where they enter into these types of convoluted arrangements to avoid it.