Nichola Ross Martin's Tax Consultancy

• The ‘Disguised Remuneration’ legislation is included in Section 26 and Schedule 2 of Finance Act 2011.
• It provides measures to ensure that tax on employment income is not avoided or deferred through the use of trusts or other intermediaries, such as Employee Benefit Trusts (EBTs) and Employer Financed Retirement Benefit Schemes (EFRBS).
• The new rules will take effect from 6 April 2011 and apply to rewards which are earmarked or otherwise made available to an employee on or after that date.
• Anti-forestalling provisions will also apply between 9 December 2010 and 5 April 2011. These anti-forestalling provisions apply if any sums are paid, or steps are taken for the purposes of securing the payment of such sums, during this period and where they would have been caught by the legislation if paid or provided on or after 6 April 2011.
• The legislation applie to benefits and payments provided from existing arrangements.

The legislation is complex and can potentially catch arrangements which are not intended to avoid tax.

A new accelerated employment tax and National Insurance (NICs) charge is imposed on a range of remuneration arrangements.

The intention is 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 a new Part 7A of ITEPA will provide for a new employment income tax charge to apply in the following ways:

• sums or assets that are earmarked for employees by trusts or other intermediaries will be treated as though the amount of the sum or the value of the asset concerned is a payment of PAYE income provided by the employee’s employer to the employee;
• loans provided to employees by trusts and other intermediaries will be treated as though the value of the loan provided is a payment of PAYE income provided by the employee’s employer to the employee; and
• assets provided to employees by trusts and other intermediaries will be regarded for tax purposes as a payment of PAYE income by the employer where certain conditions specified in new Part 7A are met.

Regulations will apply NICs to amounts chargeable to tax to under this measure.

For example, where the asset in question is transferred or otherwise made available for an employee’s use and benefit as if the employee owned the asset. The amount concerned will count as a payment of employment income and the employer will be required to account for PAYE accordingly.

Whilst payments made under HMRC approved arrangements such as contributions to registered pensions schemes and approved employee share schemes should be exempt under the new measures, it seems that other straightforward remuneration arrangements from deferrals of bonuses, employee loans and unapproved share schemes could be affected.

It is also unclear how loans from EBTs received prior to 9 December 2010 will be affected and what effect the rules will have where an EBT forms part of an unapproved share scheme to set up an internal market for employee shares.

Link to HMRC's Draft guidance on income tax

HMRC had added some FAQs on its site to deal with various queries relating to the draft legislation for the 2011 Finance Bill.

Draft National Insurance regulations

August 2011: HM Revenue & Customs (HMRC) have published draft regulations for comment.

The regulations make provision for amounts chargeable to income tax under Chapter 2 of Part 7A of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) to be treated as earnings for the purposes of National Insurance contributions (NICs) if they would not already be earnings for NICs purposes. They include provision to prevent a double liability for NICs on such amounts.

Where these regulations apply ordinary NICs principles will apply to the collection of NICs. As a consequence there will be two aspects of the income tax treatment of amounts chargeable under Part 7A which will not be fully aligned with the corresponding NICs treatment:

• Amounts deriving from duties of an employment performed overseas or with an overseas employer and chargeable to income tax on the remittance basis by virtue of sections 554Z9 or 554Z10 ITEPA will be liable to Class 1 NICs on the value of the relevant step when it is taken.
• Amounts chargeable under Chapter 2 of Part 7A which subsequently attract income tax relief under section 554Z14 (relief where earmarking is not followed by a later relevant step) will not attract corresponding NICs relief.
• Link to Draft NICs regulations