Disguised remuneration and employee benefit trusts: essentials for employment lawyers
Disguised remuneration and employee benefit trusts: essentials for employment lawyers

The following Employment guidance note provides comprehensive and up to date legal information covering:

  • Disguised remuneration and employee benefit trusts: essentials for employment lawyers
  • Tax planning environment before rules introduced
  • When the disguised remuneration rules apply—the gateway
  • The tax charge and responsibility for paying tax
  • Exclusions from the disguised remuneration rules
  • Disguised remuneration and the self-employed
  • Implications of the disguised remuneration rules
  • What is an employee benefit trust (EBT)?
  • On-shore versus offshore EBTs
  • Tax position of trustees of an EBT
  • more

HMRC has, for many years, sought to ensure that the rewards gained from employment are properly subject to income tax and national insurance contributions (NICs) deducted by employers through the pay as you earn (PAYE) system. By contrast, employers have sought to use increasingly innovative ways to structure remuneration by using employee benefit trusts (EBTs) and other vehicles to avoid, defer or reduce income tax liabilities.

The disguised remuneration (DR) legislation, introduced in Finance Act 2011, was a warning to employers and promoters of tax avoidance schemes that the use of employee benefit trusts (EBTs) and other contrived remuneration structures to avoid, defer or reduce income tax liabilities would be strongly challenged. It became Part 7A of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003). The legislation covers the provision of loans and other forms of benefits by third parties, as well as certain arrangements which provide pension rights in excess of the annual and lifetime allowances applicable to registered pension schemes.

The government confirmed at Budget 2016 that a further package of measures would be introduced to tackle the ongoing use of DR avoidance schemes. These were the subject of a technical consultation in 2016 and were introduced in the Finance Act 2017, Finance (No 2) Act 2017 and Finance Act 2018.

For further information, see Practice Note: Disguised remuneration—structure of