Disguised remuneration and the self-employed
Produced in partnership with Karen Cooper of Cooper Cavendish LLP
Disguised remuneration and the self-employed

The following Tax guidance note Produced in partnership with Karen Cooper of Cooper Cavendish LLP provides comprehensive and up to date legal information covering:

  • Disguised remuneration and the self-employed
  • Charge on ‘relevant benefit’
  • Meaning of ‘relevant benefit’
  • Meaning of ‘tax advantage’
  • Taxation of the relevant benefit
  • Anti-avoidance
  • Double taxation
  • Outstanding loan charge
  • Deductions and anti-avoidance
  • Disguised remuneration settlement opportunity

In 2011, anti-avoidance legislation in the form of Part 7A of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) was introduced to tackle arrangements aimed at providing employees and their family members with benefits free of income tax and National Insurance contributions (NICs). The rules, known as the ‘disguised remuneration’ rules, typically catch the use of employee benefit trusts or other similar third-party arrangements which provide loans, benefits and pensions in excess of annual and lifetime limits.

For further detail on the existing rules on disguised remuneration, see the Practice Notes within the Disguised remuneration and EBTs subtopic.

At Budget 2016, HMRC announced further proposed changes to Part 7A aimed at tackling ongoing anti-avoidance. Following a consultation on the proposals (published on 10 August 2016), the government confirmed that the disguised remuneration rules would be extended to cover similar arrangements used by self-employed individuals. Under Part 2 of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005), self-employed individuals are taxed on the receipt of income for the provision of their services. The 2016 consultation paper noted the majority of disguised remuneration schemes operated by self-employed individuals focussed on depressing the income of their trade by diverting monies earned, thus reducing the amount charged to income tax and NICs. The diverted monies would then be received by the individual