PAYROLL INSIGHT
Disguised remuneration
Sarah Bradford, of Writetax Ltd, outlines the proposals to tighten the rules to prevent certain disguised remuneration schemes
A t the time of the 2016 Budget, the Chancellor announced that the government would be taking action to clamp down on those using disguised remuneration schemes to avoid paying tax and National Insurance contributions (NICs). A package of measures would tackle: ● the continued use of such schemes ● the use of such schemes to date, and ● the use of other similar schemes, including any involving self-employment. The first of the measures was addressed in Finance Act 2016 which includes legislation to target schemes that seek to exploit a perceived weakness in the disguised remuneration legislation. An additional targeted anti-avoidance rule is introduced which has retrospective effect from 16 March 2016. Further legislation is to be included in the 2017 Finance Bill to put beyond reasonable doubt that schemes which result in a loan or other debt being owed by an employee to the third party are caught by the disguised remuneration legislation in Part 7A of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA), regardless of the nature of the intervening steps. Legislation will also be introduced to make it clear how the disguised remuneration legislation applies to directors and shareholders in close companies. The government is aware of other
Though the technical consultation focuses on the proposed changes as they will apply for income tax purposes, it is the government’s intention that the changes will be mirrored for NICs purposes. Loan transfers Most disguised remuneration schemes involve a loan being made to an employee by a third party. However, some schemes have sought to escape the charge under the provisions of Part 7A ITEPA by ensuring that someone other than the third party (such as an employer) makes the initial loan. Under the scheme, the making of the loan is followed by a series of intervening steps, the end result of which is that the employee owes the balance on the loan to a third party. Promoters of such schemes claim that they fall outside the scope of the Part 7A charge because the third party did not make the original loan to the employee. Example 1 illustrates how such schemes work. Example 1 The employer makes a loan of £10,000 to employee A, and then enters into an arrangement with a trust, of which A is a beneficiary, with the end result being that A owes the trust £10,000. A’s employer claims that Part 7A doesn’t apply because the trust didn’t make the loan, or any other payment, to A.
schemes which aim to avoid tax and NICs on earned income. The 2017 Finance Bill will contain legislation to tackle schemes of this nature.
...additional targeted anti-
Technical consultation A technical consultation, which ended on 5 October 2016, set out more details of the changes that are to be introduced in the 2017 Finance Bill, together with an early draft of the proposed legislation which is aimed at tackling the avoidance of tax and NICs through the use of disguised remuneration schemes. The intention is for a further draft of the legislation to be consulted on as part of the process on the draft 2017 Finance Bill. The proposed legislation is not aimed at arrangements such as certain employee shares schemes and pensions which fall within the existing rules, and the government is seeking feedback on arrangements that are not disguised remuneration avoidance schemes but which could potentially be caught by the proposed rules. avoidance rule is introduced which has retrospective effect...
| Professional in Payroll, Pensions and Reward | November 2016 | Issue 25 18
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