Disguised remuneration—structure of the regime and its implications in practice — 2022
Produced in partnership with Karen Cooper of Cooper Cavendish
Last updated on 12/08/2022

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

  • Disguised remuneration—structure of the regime and its implications in practice
  • Introduction
  • When do the rules apply—the gateway?
  • Relevant third person
  • Relevant steps
  • What arrangements have been affected?
  • Implications for pensions
  • Implications for share schemes
  • Implications for other EBT-based remuneration planning
  • Anti-avoidance measures
  • More...

Disguised remuneration—structure of the regime and its implications in practice

Introduction

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 employee benefit trusts (EBTs) and other 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 which targeted 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.

Guidance is contained in the Employment Income Manual starting at EIM45000.

The government confirmed at Budget 2016 that a further package of measures was to be introduced to tackle the ongoing use of disguised remuneration (DR) avoidance schemes. These were the subject of a technical consultation (which was launched on 10 August 2016 and closed

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Key definition:
Remuneration definition
What does Remuneration mean?

In a defined benefit scheme, the amount of pension earned is invariably related to the amount of salary; HMRC calls this remuneration. So far as scheme rules or an employer's policy is concerned, it can include or exclude bonuses, commission and other fluctuating emoluments.

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