EFRBS and disguised remuneration

Produced by Tolley in association with John Hayward

The following Employment Tax guidance note Produced by Tolley in association with John Hayward provides comprehensive and up to date tax information covering:

  • EFRBS and disguised remuneration
  • Introduction
  • EFRBS and disguised remuneration
  • Disguised remuneration in practice
  • The relevant steps

EFRBS and disguised remuneration


Unregistered schemes, Employer Financed Retirement Benefit 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 purpose 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’ pension tax regime.

At the same time, HMRC was looking to tackle avoidance based on the use of employee benefit trusts (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, ss 554A–554Z21 (Pt 7A). 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 is in substance, a reward or recognition or loan in connection with the employee’s employment, an income tax and NIC charge arises on its full value, to which PAYE applies.

The effect of the legislation is to impose an immediate income tax charge where a ‘relevant third person’ takes steps to allocate or earmark cash assets or makes assets available by way of a loan or distribution. The definition of a relevant third person is wide enough to include both EBTs and EFRBS arrangements (where the employer is a trustee of an EBT or a trust set up to deliver an EFRBS, the employer is considered as a relevant third person when acting in that capacity).

Arrangements made prior to 10 December 20

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