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.

The disguised remuneration legislation, introduced in Finance Act 2011, was 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 would 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, Pt 7A was enacted to deter arrangements known as ‘disguised remuneration’.

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 and/or national insurance liabilities, or

  2. evading the effects of restrictions on pensions tax relief

The disguised remuneration legislation is not restricted to the pensions arena and can potentially affect other types of employee benefit arrangements such as employer benefit trusts. This Practice Note focuses on its effects on non-registered pension schemes, and especially employer-financed retirement benefit schemes (EFRBS).

HMRC has issued guidance on