A former chief executive faces a potential ban from working in financial services and a fine of more than £154,000 after financial regulators accused him of paying his wife part of his salary to reduce his tax bills.
On Monday, the Financial Conduct Authority and Prudential Regulation Authority said they had decided to fine Stuart Malcolm Forsyth — previously chief executive of a small mutual insurer — £78,318 and £76,180 respectively.
A joint investigation by the regulators found that between 2010 and 2016 Mr Forsyth “transferred excessive amounts of his own remuneration to his wife to reduce his own tax liability and took steps to conceal that arrangement”.
Mr Forsyth has appealed against the decision to the Upper Tribunal. As a result, the regulators’ decision remains provisional until the tribunal rules on the matter.
While the regulators criticised Mr Forsyth primarily for “lacking integrity” the case also brings into focus the complex rules governing how spouses can legitimately plan around their tax.
The regulators’ investigation found that until 2010, Mrs Forsyth was paid between £5,000 and around £10,000 a year out of Mr Forsyth’s salary in compensation for providing some out-of-hours administrative support and occasional hospitality at home.
“[This] was not obviously unreasonable for the work she was undertaking,” the regulators said. “[But] from 2010, Mr Forsyth transferred increasing amounts of his salary, and in most years all or part of his own bonus, to Mrs Forsyth to reduce his tax liability.
“Between 2010 and 2016, Mr Forsyth transferred just over £200,000 of his pay to Mrs Forsyth, and by the 2015-16 tax year, Mrs Forsyth’s remuneration was just over £52,000, more than any other . . . employee save Mr Forsyth. As a result of these arrangements, Mr Forsyth paid approximately £18,000 less in income tax than he should have done.”
In addition, the regulators said Mr Forsyth concealed the payments from the board of his company, the Scottish Boatowners Mutual Insurance Association, and “created false minutes to give the misleading impression” that the board had agreed to the salaries of Mr and Mrs Forsyth in 2013, 2014 and 2015.
Tim Stovold, head of tax at Moore Kingston Smith, said it was not unusual for family-owned businesses to recognise the contribution of spouses or adult children by paying them a small salary. But to be acceptable to the tax authorities, the amounts paid would need to be “reasonable” and in line with the market rate.
“In the case of Mr Forsyth and his wife, matters seemed to have gone beyond what could be considered reasonable, with his wife becoming the highest earning employee save for Mr Forsyth,” Mr Stovold said.
Dominic Lawrance, partner at law firm Charles Russell Speechlys, added that the case was potentially an example of inaccurate tax reporting.
“Mr Forsyth was contractually entitled to salary and bonus, and he purportedly transferred proportions of the relevant sums to Mrs Forsyth to take advantage of her lower tax rate,” he explained. “The reality of the situation was that this was Mr Forsyth’s income and he should have paid tax on all of it.”
Charles Calkin, financial planner at wealth manager James Hambro & Partners, said the Forsyth case caught the regulators’ attention primarily because of corporate governance issues. However, in other circumstances, married couples and those in a civil partnership can legally reduce their tax liabilities by pooling their tax allowances and passing assets between them. Doing so can help couples to avoid triggering a charge to capital gains tax or inheritance tax.
He added that the marriage allowance can help low-income households reduce their income tax bill by as much as £250 a year by allowing the lower earner to transfer £1,250 of their personal allowance to a higher earning spouse or civil partner.
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November 19, 2019 at 12:01PM
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Executive faces fine of £154,000 after tax pact with wife - Financial Times
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