26th September 2017 Written by Andy Vessey
Wealth advisor, Knight Wolffe, has been rapped by the Advertising Standards Authority (ASA) for misleading income trust advertising that uses HMRC’s logo.
In the recently published Spotlight 40, ‘Income trust schemes: misleading advertising’, HMRC label the Knight Wolffe income trust as an avoidance scheme as the trust aims to divert income from a business into a trust. The trust then loans it back to the business owners, their families, or both, claiming that no Income Tax or NIC arises.
HMRC complained to the ASA that:
In their defence, Knight Wolffe only responded to points 1 and 3 as follows:
HMRC’s understanding of the income trust scheme is that the:
In reality, the suppliers aren’t aware they’ve become beneficiaries of the trust. The trust funds are then loaned, usually to the business owner, their family, or both. The terms of the loan mean the funds are unlikely to be repaid.
Eventually the loans are claimed to reduce the scheme user’s estate value for Inheritance Tax purposes. As a result, the scheme user has full use of the money, which appears to be tax-free.
The ASA upheld every one of HMRC’s complaints and now sets a precedent so that promoters of similar schemes must not make the same claims. Failure to do so could result in the ASA imposing sanctions.
Already using an income trust scheme?
For those already using one of these schemes, HMRC are urging people to e-mail email@example.com to arrange settlement of tax and NIC due.
By Andy Vessey