HMRC have recently published the latest addition to their tax avoidance guidance series, entitled Employee Bonus Schemes: Growth Securities Ownership Plan and other avoidance schemes based on contracts for difference (Spotlight 28). The Spotlight guidance confirms that, in HMRC’s opinion, growth securities ownership plan schemes do not work and any payment made by an employer to an employee on the maturity of the contract for difference should be taxed as employment income and subject to PAYE income tax and National Insurance contributions (NICs).
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Broadly, under this type of arrangement, each employee acquires a contract for difference which entitles the employee to receive a cash payment at a pre-determined date provided a pre-determined hurdle is achieved (often referred to as the ‘upside’). A feature of these avoidance schemes is that on entering the scheme, the employee usually agrees to reimburse the employer for the tax and NIC that HMRC recover from the employer.
HMRC have confirmed that any employer who has used a contract for difference scheme and wishes to avoid litigation can pay the outstanding tax and employer and employee NIC together with the interest which has arisen upon it.
For further information, see Spotlight 28 at here.