Senior bankers at JPMorgan could yet be obliged to pay income tax obligations dating back up to SIX YEARS

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This is a depressing story for the weekend, but it is one for which you may thank us if it dissuades the purchase of an expensive item and encourages saving to cover an enormous tax liability which could possibly be coming your way.

As we reported in early February, JPMorgan is rumoured to be making changes to an employee benefit trust which mitigates employees' exposure to UK income tax. According to ThisisMoney, the trust is based in Guernsey and has existed for 'several years.'

Separately, it also emerged last month that Deutsche ran a tax efficient scheme linked to the Cayman Islands in 2003 and 2004. This was ruled invalid by HMRC in February, creating a 50m tax liability for Deutsche.

Meanwhile, in November last year, it emerged that UBS was being pursued for a 50m UK tax liability relating to a tax efficient scheme that operated for one year in 2003. The Sunday Times said UBS was 'expected' to claw back this payment from employees. The bank is currently understood to be contesting this claim.

Retrospective tax liabilities

Under a law passed in 2004, the UK government is able to claim payment for income tax retrospectively if schemes are found to have been created for tax avoidance purposes.

There is no suggestion that JPMorgan's scheme was created explicitly for this reason (although it does appear to have had the effect of mitigating UK income tax exposure), or that JPMorgan could be obliged to pay income tax retrospectively on money paid into their scheme. Discussions with HMRC are understood to be an early stage.

However, in the event that HMRC does decide JPMorgan's scheme was created for the purposes of tax avoidance, repayment remains a possibility. And the fact that the JPMorgan scheme has existed for so long means that any liability - if it does exist, is likely to be considerably larger than at Deutsche and UBS.

"Banks have been losing a number of these cases recently and HMRC will therefore be claiming the tax back from someone," warns Graham Muir, a partner at Nabarro. "Since 2004, the legislature has reserved the right to apply anti-avoidance legislation retrospectively, enabling unpaid tax to be reclaimed."

Who pays?

If a big retrospective tax bill does emerge - at JPMorgan or elsewhere, the question then becomes who pays it.

Danny Blum, a partner in the tax & employee incentives group at Eversheds, says they usually advise employers to draw up contracts which pass any liability for income tax and employee's National Insurance contributions to the employee.

"Arguably, companies have a fiduciary obligation to their shareholders to ensure they're not picking up tax costs and penalties where employees have received tax-free benefits," Blum says.

John Whiting, a tax policy director at the Chartered Institute of Taxation, says the danger is that the revenue could attempt to recover all the tax dating back to 2004 in one single year. "All the income someone has drawn from a trust since 2004 could be pinned on them as taxable income today," he warns.

This being the case, 2011's tax bill could, potentially turn out to be very large indeed.

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