Disguised remuneration and pensions
Produced in partnership with Wyn Derbyshire of gunnercooke LLP
Disguised remuneration and pensions

The following Pensions guidance note Produced in partnership with Wyn Derbyshire of gunnercooke LLP provides comprehensive and up to date legal information covering:

  • Disguised remuneration and pensions
  • What is disguised remuneration?
  • Application of disguised remuneration legislation
  • Arrangement
  • Relevant third person
  • Relevant step
  • Category 1: earmarking of sum of money or asset
  • Category 2: payment of sum or transfer of asset
  • Category 3: making an asset available
  • Exclusions
  • more

What is disguised remuneration?

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.

With this in mind, HMRC introduced the disguised remuneration legislation in Finance Act 2011, which aims to tackle the use of Employer Financed Retirement Benefit Schemes (EFRBS), Employee Benefits Trusts and other ‘disguised remuneration’, so that benefits received are no more attractive than taking a salary.

The legislation imposes a PAYE obligation on the employer and/or trustees of pension schemes to collect income tax and associated National Insurance Contribution (NIC) charges and it serves as a warning to employers and promoters of tax avoidance schemes that the use of certain contrived remuneration structures to avoid, defer or reduce income tax liabilities will be strongly challenged.

Publication of the draft legislation in December 2010 was met with extensive criticism in light of its wide-ranging nature and its potential for catching innocent arrangements that did not involve tax avoidance. Following a series of amendments to the draft rules, ITEPA 2003, Part 7A was enacted to deter such arrangements.

Disguised remuneration arrangements are arrangements made by an employer to reward an employee through a third party for the purpose of:

  1. avoiding, deferring or reducing income tax