HMRC tax scheme victory

Posted: 20th January 2012

HM Revenue and Customs have achieved a victory in the Court of Appeal over a scheme intended to pay bonuses to employees without the payments being liable to National Insurance contributions (NICs). The employer and the employees stood to make a considerable saving.
The company operating the scheme gave the employees bonuses in the form of shares rather than cash, and then paid dividends on the shares. Under UK tax law, income from employment is subject to both employer’s and employee’s NICs. The payment of dividends does not incur an NIC liability.
The Court considered that the nature of the payment, rather than the technical mechanism used, was the crucial factor. The receipts were in the nature of earnings and therefore were subject to NICs.