A number of users of the tax avoidance scheme known as the Growth Share Ownership Plan (GSOP) are about to face the onslaught of HM Revenue & Customs (HMRC).
What is GSOP?
In summary, under a GSOP, employees of a business put money into the employer company and subsequently the employee receives money back. based on the out-turn of the company’s results.
There is no suggestion that tax is being evaded by using a GSOP. Indeed tax is being paid under a GSOP but often at a lower rate and sometimes in the wrong year.
Where is the tax avoidance?
The money paid back to the employee is taxed as a capital gain, not as income. In this way, the employee has the ability to utilise a tax-free annual exemption for capital gains tax purposes and be taxed at a lower capital gains tax rate compared to income tax rates and avoid National Insurance altogether for both the employee and employer.
What are the misconceptions?
A number of participants have been misled when they have been told that:
- A GSOP is not a tax avoidance scheme. It is – it was simply not registered under the Disclosure of Tax Avoidance Schemes (DOTAS) and given a Scheme Reference Number;
- There are “lead cases” being decided on a test case basis;
- HMRC are not pursuing cases under their Litigation and Settlement Strategy.
What is HMRC doing?
HMRC are contacting participants to explain directly what their views are on this tax avoidance scheme. Participants are often unaware that HMRC consider a GSOP as a form of aggressive tax avoidance. Both the scheme promoter and HMRC have been at loggerheads for years leading to uncertainty for all participants. HMRC are now preparing a Statement of Cases on all such schemes which is expected to be actioned by the end of 2018, if not sooner.
What should participants do?
There are various groups of participants including those that:
- continue to assume the ostrich position and have no wish to exit;
- are unsure as to how they can exit and/or how much it may cost in terms of a Settlement of tax, interest etc.;
- simply want to exit and move on.
Little can be done to help the first group. Those on the other two groups may need assistance.
Participants may wish to explore their options and have guidance through the exit process. I can be contacted at firstname.lastname@example.org or Andy at email@example.com for a free initial no obligation consultation.