Disguised remuneration ― overview

Produced by Tolley in association with Karen Cooper of CooperCavendish LLP

The following Employment Tax guidance note Produced by Tolley in association with Karen Cooper of CooperCavendish LLP provides comprehensive and up to date tax information covering:

  • Disguised remuneration ― overview
  • Introduction
  • When do the rules apply?
  • Relevant third party
  • Relevant steps
  • What arrangements are affected?
  • Implications for pensions
  • Implications for share schemes
  • Implications for other EBT-based remuneration planning
  • Anti-avoidance measures

Disguised remuneration ― overview


HMRC has, for many years, sought to ensure that the rewards gained from employment are properly subject to income tax and national insurance contributions (NIC) 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 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, ss 554A–554Z21 (Pt 7A) (containing legislation known as the ‘DR rules’) was enacted which aimed at curbing such planning. The rules 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 on ITEPA 2003, ss 554A–554Z21 (Pt 7A) is contained in the Employment Income Manual starting at EIM45000.

However, 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 (which closed on 5 October 2016) on provisions to be introduced in Finance Bill 2017. However, as a result of Finance Act 2017 being fast-tracked through Parliament in advance of the 8 June general election, a number of the measures were dropped but were introduced in Finance (No 2) Act 2017.

Finance Act 2018 includes a number of further measures, including a new close company gateway. This measure was announced in 2016 but its implementation

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