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Tax tribunal foils bonus scheme

A tax tribunal has ruled that special companies set up to avoid tax on directors' bonuses was unlawful.

The tribunal has ruled that PAYE tax and National Insurance Contributions should have been paid on bonuses given to directors through companies which were only set up to pay out the cash just to be liquidated straight after.

Tower Radio and Total Property Support Services were the lead company cases at the tribunal but the decision is said to be relevant to 104 other companies which used the same tax avoidance scheme to try to pay bonuses without any PAYE tax or National Insurance Contributions.

The scheme involved companies setting up subsidiary companies as special purpose vehicles (SPVs) funded with surplus cash. The directors were awarded restricted shares in the SPVs which were then liquidated and the cash paid out to the directors as 'distributions' in respect of their shares.

The tribunal judge ruled that PAYE tax and National Insurance Contributions must be paid on the money received by the directors and the ruling is said to have protected more than £22 million in savings for the tax authorities.

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