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Schedule E - After the RIOT Scheme

06 November 2002 / Mervyn Macdonald
Issue: 3882 / Categories:

MERVYN MacDONALD of DTE Business Services Group details the settlement reached with the Revenue after the firm's appeal case.

MERVYN MacDONALD of DTE Business Services Group details the settlement reached with the Revenue after the firm's appeal case.

FOLLOWING THE COURT of Appeal decision in DTE Financial Services Limited v Wilson [2001] STC 777, a framework has been agreed between DTE and the Inland Revenue on how outstanding remuneration appeals relative to both pay-as-you-earn and National Insurance can be settled, where schemes popularly known as 'RIOT remuneration' have been used.

As a reminder, the scheme was designed to avoid National Insurance contributions liability on bonuses which were to be paid amounting to £40,000 in the case of three directors. The scheme involved the purchase of three interests in overseas trusts for £40,600 each and the assignment of those interests to the three directors. The directors realised their interests for £40,000 each, with the balance of £600 going towards the costs of the scheme.

This agreement not only gives effect to the Court's decision to impose a charge to pay-as-you-earn tax under the Ramsay principle and, by implication, a liability to National Insurance contributions, but also deals with several practical issues which arise. It confirms a number of Inland Revenue concessions available to those who now wish to conclude their position. The main aspects are:

The taxable amount

For both pay-as-you-earn tax calculations and National Insurance liabilities, the sum chargeable is the lesser amount actually received by the employee (as opposed to the slightly greater figure which should have been put on P11D forms, being the cost to the employer of the original trust interests).

There are to be no charges on employees via section 144A, Taxes Act 1988. This concerns payments made free of tax and the section provides for 'tax on the tax' where it is not made good by the employee within 30 days.

There is a potential of a similar charge to that arising under section 144A assessable under section 164 (director's tax paid by employer). However, no such liability will arise providing the tax involved (the employer's PAYE liability, excluding late payment interest) is made good to the employer by the employee, in one of three ways:


1. Direct cash payment.


2. The tax involved being allocated against an employee/director's loan account.


3. The reallocation of a personal tax payment made by the employee against the employer's liability.

Where a section 164 liability does arise, it is chargeable in the year of actual payment of the pay-as-you-earn tax involved, which may be different from the year in which the remuneration in the form of the trust interest was originally paid but (per the Inland Revenue - by concession) no National Insurance on this section 164 taxable benefit will be requested or pursued.

Where employees have made personal tax payments regarding trust interest remuneration, either against Schedule E assessments or via self assessment, these can be reallocated against the employer's liability (on a written request from the employee or his agent) and, for PAYE late payment interest purposes, such reallocations will take place as of the original date of payment by the employee.

Interest on the liabilities

Pay-as-you-earn interest will be due from 19 April following the tax year in which it became due to the date of actual payment, or deemed payment via personal tax reallocations as detailed above. Late payment of National Insurance will also cause an interest charge to arise, again from 19 April following the tax year in which it became due to the actual date of payment. For those companies in the DTE test case procedure, originally negotiated with the Contributions Agency, there is an interest remission period from 31 July 1998, or such earlier date as may have been previously notified by the Contributions Agency/ Inland Revenue NI Contributions Office, to 31 July 1999, or, where the Notice of Decision was issued after 1 August 1999, to the Notice of Decision issue date. PAYE late payment interest will be disallowable for corporation tax purposes, but for late payment interest on National Insurance, the interest has been agreed (per the Inland Revenue - by concession) to be an allowable deduction.

While there will be interest on late payment due, there will be normally no question of penalties.


Where there is any PAYE tax or National Insurance to charge to the profit and loss account which has not previously been reserved for it, it should be included in the next available set of accounts to be completed to obtain corporation tax relief.

Employee's unused allowances

In circumstances where the employee has considerable tax allowances (for example, losses), it is possible to request that the Regulation 49 determination be amended on a claim by the employee, to include such allowances as the employee was due for the tax year in question, whether or not included in the original year-end code number. Such a procedure is permitted under paragraph 3895 of the Revenue's Employment Procedures Manual, Volume 3, Chapter 5, but is to be dealt with on a case by case basis by the appropriate district.


Mervyn MacDonald can be contacted by e-mail at


Issue: 3882 / Categories:
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