High-earning Umbrella Company Employees might want to examine their bank accounts carefully in the light of a recent Tax Tribunal ruling.
Solicitor Andrew Bingham placed substantial funds over the years into interest-earning building society and bank accounts. He and his wife held an HSBC Money Market Account, into which Mr Bingham transferred earnings arising from his successful practise. His three children were added as signatories in 1994 and in 2002.
Interest earned on the account was transferred to another interest-earning account with HSBC, from which monies were transferred into a current account. All parties remained signatories on each account.
Interest was apportioned between the account holders. In later years, Mr Bingham sought to take advantage of the lower marginal rates of tax payable by his children and his wife by allocating income to them in relevant ratios.
Following an enquiry in 2005, however, HMRC concluded that Mr Bingham was liable for tax on all the interest on these accounts. Although he had intended the account to be a family resource, and of which he had no personal need for, HMRC argued that he was the beneficial owner and sole provider of funds. Between 1996 and 2010, the Revenue argued, Mr Bingham was liable to pay £650,000 in penalties, interest and tax.
The Tribunal found that, while he had not been negligent and was sincere in his incorrect belief that he could apportion interest as described, he was indeed the sole provider and beneficial owner of the funds and should have accounted to HMRC for all of the interest under the settlements legislation. Revenue assessments for 2005-2010 were upheld, although not for the earlier period.