HM Revenue and Customs (HMRC) has issued a clear warning to company directors, particularly those running owner-managed businesses, about certain pension-based tax avoidance schemes.
HMRC’s message is straightforward: these schemes do not work. If you use them, HMRC is likely to challenge your tax position and require you to pay the tax you were trying to avoid — often with interest and penalties on top.
What These Schemes Promise
These arrangements are typically marketed as a way to:
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extract money from your company
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avoid Income Tax and National Insurance contributions
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still claim Corporation Tax relief
They often sound legitimate because they refer to “pensions” and accounting entries rather than direct payments to you.
How the Schemes Actually Work
In most cases:
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Your company agrees to pay you a pension in the future, without setting aside real pension funds
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The company records a large accounting expense, reducing its profits and Corporation Tax bill
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The pension obligation is then transferred to a third party, often:
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your spouse or another family member, or
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another director in the same company
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A payment is then made — either to the third party or directly to you — and the scheme claims this can be done without immediate tax or NICs.
HMRC has made it clear that many of these pensions are never intended to be paid at all, and that the arrangements lack genuine commercial purpose.
Why HMRC Says These Schemes Don’t Work
The GAAR Advisory Panel has reviewed these arrangements several times and has consistently rejected them.
Opinions issued in 2022, 2024 and 2024 all concluded that entering into these schemes is not reasonable.
As a result, HMRC will:
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deny the Corporation Tax relief
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treat payments as taxable income
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pursue directors personally for Income Tax and National Insurance
The Risks for You as a Director
If you use one of these schemes, you could face:
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a large unexpected tax bill
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interest on unpaid tax
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penalties for tax avoidance
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an accelerated payment notice, requiring you to pay the tax upfront while HMRC investigates
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in some cases, a 60% GAAR penalty
You may also still be liable for substantial promoter fees, even if the scheme fails.
Promoters Are Being Targeted — But Directors Still Pay
While HMRC is taking action against scheme promoters, directors remain responsible for their own tax affairs.
Even if you were advised that the scheme was “approved”, “compliant” or “low risk”, HMRC does not accept these claims.
What You Should Do Now
If you are already involved in one of these schemes — or something similar — HMRC strongly advises you to act quickly.
You should:
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contact HMRC to discuss exiting the arrangement
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speak to your existing HMRC contact, if you have one
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get independent tax advice from a qualified adviser
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consider support from tax charities such as TaxAid if you’re unsure where to start
Early action can reduce penalties and give you certainty over your personal tax position.
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