EFRBS and disguised remuneration

By Tolley

The following Owner-Managed Businesses guidance note by Tolley provides comprehensive and up to date tax information covering:

  • EFRBS and disguised remuneration
  • Introduction
  • EFRBS and disguised remuneration
  • Disguised remuneration in practice


An Employer Financed Retirement Benefits Scheme (EFRBS) is an unregistered and unapproved pension scheme for the provision of retirement benefits. An EFRBS operates by way of a discretionary trust, similar to an employee benefit trust (EBT) (see the Employee benefit trusts guidance note) but with specific powers to provide retirement benefits. Contributions can be made to the EFRBS by the employer (and / or the employee). The EFRBS will normally establish funds for individual employees and make investments / hold assets on behalf of those employees over a period of time. Employees can then indicate how they would like to receive the relevant benefits once they retire.

As unregistered schemes, EFRBS are not subject to the pensions taxation regime set out in FA 2004. Thus, contributions to an EFRBS are not subject to the annual allowance charge and benefits from an EFRBS are not tested against the lifetime allowance. These rules apply equally to funded and unfunded arrangements.

EFRBS and disguised remuneration

Historically, HMRC saw instances of EFRBS being used for the purposes of providing loans to members and so avoiding tax. The Government saw the ‘creative use of EFRBS’ to provide retirement benefits as not in keeping with its intention to create a ‘more affordable pensions tax regime’.

At the same time, HMRC was looking to tackle avoidance based on the use of EBTs as a means of delivering loans and other benefits for employees.

In a move to close off both of these potential avoidance routes, the Government introduced ITEPA 2003, Part 7A which came into effect from 6 April 2011 but with anti-forestalling rules applying from 9 December 2010. Although this is entitled ‘Employment Income Provided through Third Parties’, it is commonly referred to as the Disguised Remuneration legislation. It aims to ensure that where a third party makes provision for what

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