TAXATION: Companies cautioned over using prepaid debit cards for tax-free profit extraction
HMRC is warning companies not to use a scheme that uses advertising and marketing expenditure to reduce taxable profits and disguise employment income in the form of redeemable loyalty points. Scheme users buy advertising from the arrangement’s promoter and claim a deduction for the expense in calculating their taxable profits, as well as reclaiming the VAT incurred. The directors then receive prepaid cards loaded with loyalty points equal to 80 per cent of the advertising cost, which they can spend at their own discretion. However, HMRC regards the loyalty points as the directors’ taxable income.
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