Panel set up by former chancellor George Osborne issues first ruling to fight ‘artificial and abusive’ avoidance schemes

Companies will no longer be able to pay employees their salaries in gold bullion in the first use of a new law designed to combat “morally repugnant” tax avoidance schemes.

An expert tax avoidance panel has ruled that paying employees in gold is a “contrived” tax avoidance scheme designed to “frustrate the intent of parliament” in cracking down on such practices.

It is the first application of the general anti-abuse rule (GAAR) panel since it was introduced by former chancellor George Osborne in 2013 as part of a package of measures to tackle tax evasion.

The ruling means HM Revenue and Customs (HMRC) will be able to take action against both companies and employees seeking to take advantage of the “artificial and abusive” gold bullion schemes.

HMRC said accountants had created schemes designed to “disguise remuneration to individuals through paying them via a series of transactions buying and selling an asset, commonly gold bullion”.

“They have a theoretical obligation to pay the value of the asset to a trust at some point in the future – it is claimed that this obligation makes the payment non-taxable. However, in instances seen by HMRC so far, the individual has actually taken cash, thus supporting the HMRC view this is a payment of earnings.”

People used to be paid in all sorts of assets - hay, wine, Persian carpets, Turkish lira, gold bullion, platinum

The Revenue said it was delighted with the ruling. “HMRC has already made clear that gold bullion avoidance schemes don’t work and that we will challenge these schemes wherever possible,” it said. “Today’s publication has wide-reaching impacts and reinforces the power of the GAAR in tackling abusive tax avoidance.”

HMRC was unable to say how many people had sought to have their salaries paid in gold.

Bill Longe, a tax expert at accountants RSM, said the gold bullion scheme dates back decades. “People used to be paid in all sorts of assets – hay, wine, Persian carpets, Turkish lira, gold bullion, platinum – all these arrangements were freely available and a means of avoiding tax and National Insurance contributions on bonuses.”

One gold bullion scheme seen by accountancy news website CCH Daily suggested that: “One option is for your company to pay your net of tax wages in ‘money’s worth’, which means other than cash. For instance, we discussed the example that you could ask your company to pay you in gold sovereigns.

“Your company could buy a coin and use it as part payment of your wages, the value would be its cost and the balance of wages would be paid from the bank account. You could then sell your coin if you wanted to add to the money received from the company.”

The GAAR panel said that schemes were a “clear case of associated taxpayers seeking to frustrate the intent of parliament by identifying potential loopholes in complex interlinking anti-avoidance legislation and arranging a series of intricate and precise steps to exploit those loopholes so as to gain an unexpected and unintended tax ‘win’”.

The panel said that on reviewing the schemes they found “no reason for the steps to involve gold, other than for tax purposes”.

“Had cash been used and gold not been involved, other than the saving of fees in relation to the purchase and sale of the gold, neither the company nor the employees would have been in a substantially different economic or commercial position … In our view the steps in this case involving gold are abnormal and contrived,” it said.

“It should not come as a surprise that we conclude the steps taken are not a reasonable course of action.”|

When he introduced the GAAR rule, Osborne said: “Most wealthy people pay their taxes – and without them we could not begin to afford the public services on which the country depends. But under the last government, it was the boast of some high earners that, with the help of their accountants, they were paying less in tax than their cleaners. I regard tax evasion and, indeed, aggressive tax avoidance, as morally repugnant.”