A form of planning which has developed in recent years has involved the use of “Contracts for Differences” or “CFDs”. In outline, long term incentives were created where the amount of the eventual payment was based on the accrued amount arising under the specified CFD. The intention was to allow the payments under the CFDs to be taxed as capital gain without a resulting income tax or NIC charge while still allowing corporation tax relief to be claimed.

HMRC have now issued Spotlight 28 stating that they do not believe that such structures are effective and will be challenged.

The announcement highlights the increasing difficulty with successfully implementing tax structuring which is viewed, rightly or not, as tax avoidance and the importance when designing remuneration structures of focussing primarily and on the underlying commercial objectives rather than using what is arguably an artificial approach to seek a tax advantage.

Where CFDs have been used, urgent consideration should be given to how to respond to the Spotlight 28 statement and the resulting risks.

Pett Franklin, based in Birmingham, are experts in all aspects of employee share schemes, including share plans, growth shares, and share valuation. To find out how we can assist you and your business, call 0121 281 5798 or email enquiries@pettfranklin.com.