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HMRC Puts Directors' Tax Under Microscope

(c) Sky News 2012

HM Revenue and Customs has stepped up investigations into unpaid taxes by directors, according to an international law firm.

The Tax Office's Large Business Service (LBS) is investigating directors and senior executives over taxes including PAYE, and National Insurance contributions.

Some £400m in being investigated, according to Pinsent Masons – a figure which is 43% higher than the £280m under investigation last year.*

LBS is responsible for oversight of the taxes paid by the 770 largest firms in the UK.

The increased scrutiny comes as it seeks to recover a greater amount after reduction in the top 50p tax rate.

"Tax under consideration" is seen to include both potentially underpaid tax and the risk to the Exchequer from companies litigating over amounts of tax they have overpaid.

Pinsent Masons said the sharp rise in directors' taxes under the microscope has been driven by the upswing in HMRC compliance activity, as well as investigations into avoidance linked to the 50p tax rate and the temporary special tax on bank bonuses.

Partner Jason Collins said: "HMRC has increased its focus on executives as they are a potentially lucrative source of extra tax revenue - particularly with executive pay rocketing over recent times.

"HMRC has taken a particular interest in cases where income or an individual's role at a company has been structured to reduce their tax burden, particularly their PAYE or national insurance contributions."

He added: "The introduction of new taxes for higher earners, such as the 50p marginal tax rate, mean HMRC will be on increased alert for any new forms of tax avoidance.

"The 50p tax brought in less than expected, so this may have set alarm bells ringing for tax investigators."

With increased awareness of corporations avoiding liability, the Tax Office is expected to look at avoidance or evasion by top executives.

Recent legislation has empowered HMRC to tackle 'disguised remuneration', in particular against employee benefit trusts (EBTs).

Earlier this month Sky News revealed how former and present staff at JP Morgan had been warned of litigation if they did not resolve 'dependent funds' sent offshore to Jersey.

The investment bank's staff who were part of the employee benefit trusts of 1998, 2006, 2007 and 2008 and the 2010 executive retirement plan are affected by the HMRC action.

HMRC has estimated that up to £1.7bn of tax and NI contributions were at stake in EBTs.

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