Introduction to Disguised Remuneration.

At a glance

What is disguised remuneration?

The employment income through third parties rules, also referred to as the 'disguised remuneration' rules, are anti-avoidance legislation in Part 7A ITEPA 2003 which:

  • Provide for an accelerated employment tax and National Insurance (NIC) charge on a range of remuneration arrangements.
  • Were introduced to ensure that tax on employment income is not avoided or deferred through the use of trusts or sub-trusts or other intermediaries, e.g. Employee Benefit Trusts (EBTs), remuneration trusts and Employer Financed Retirement Benefit Schemes (EFRBS).
  • Came into force on 6 April 2011, and apply to employment rewards which are earmarked or otherwise made available to an employee on or after that date

What’s new: Disguised Remuneration Settlement

HMRC have created a final settlement opportunity for disguised remuneration schemes ahead of the new loan charge being introduced on 6 April 2019.

This sets out the different positions for contractors, employees and employers where settlement is reached with them rather than their employees who have undertaken a Disguised remuneration (DR)scheme.

  • This includes but is not exclusive to Employee Benefit Trusts (EBTs).
  • Taxpayers must register their interest by 31 May 2018.
  • They must then provide all information to HMRC by 30 September 2018. This is to allow HMRC enough time to complete the settlement before 5 April 2019.

HMRC will discuss potential settlement, including setting out the terms, with all interested users of disguised remuneration schemes. 

If you are not already speaking to somebody at HMRC about involvement in the scheme you can email HMRC at This email address is being protected from spambots. You need JavaScript enabled to view it. and if you wish to talk to them about settlement you can contact them at This email address is being protected from spambots. You need JavaScript enabled to view it. for contractor loan schemes or This email address is being protected from spambots. You need JavaScript enabled to view it. for all other disguised remuneration schemes. 

If you need assistance in negotiating a settlement contact the Virtual Tax Partner support team. 


  • What are the disguised remuneration settlement terms?
  • Why do I need to make a settlement with HMRC?
  • What happens if I do not settle with HMRC

See FAQs for Disguised Remuneration settlement

What's new?

From April 2017

Two new relevant steps have been introduced and a charge arises when existing disguised remuneration loans are:

  • Transferred to a third party.
  • Released or written off.

Loan transfers

  • The rules on loan transfers put beyond any doubt that schemes which result in a loan or other debt being owed by an employee to a third party (whatever the intervening steps) are within the scope of the disguised remuneration rules.
  • They target so called ‘loan transfers’ where arrangements result in an employee being indebted

Loan write offs/releases

  • To make it clear that the write off or reverse of such loans (including loan transfers) is a relevant step which gives rise to a part 7A charge.
  • This takes priority over any employment related loan charge.

See Disguised remuneration (subscriber guide) for more details

Deductions for employee remuneration

  • Tax relief is denied for employer’s contributions to disguised remuneration schemes unless employment taxes and NICs are paid within 12 months of the end of the period in which the contribution is made.
  • This will be subject to an overarching rule that a deduction will not be allowed if more than 5 years have passed since the end of the period in which the contribution was made.
  • Any payments made after this time, including under a settlement with HMRC, will not qualify for relief.

Extending the rules to the self-employed and partners

New rules target the use of ‘similar’ avoidance schemes by the self-employed and partners:

The majority of these arrangements seek to avoid a charge to tax and NICs by depressing trading income through diverting money which is ultimately received back as a loan or other non-taxable amount. They may involve a 'remuneration trust'.

The new rules apply to ‘relevant benefits’ arising from 6 April 2017 where:

  • A person (T) is or has been carrying on a trade as a sole trader or partner.
  • There is an arrangement connected with that trade which is wholly or partly a means of providing ‘relevant benefits’ to T, someone connected to T or any other person where T will have the enjoyment.
  • The relevant benefit is connected directly or indirectly with a ‘qualifying third party payment’.
  • A tax advantage will be obtained by T (or a connected party) as a result.

Where these conditions are met the payment or benefit is taxable as part of T’s trading profits. All relevant circumstances are to be taken into account in determining whether the conditions are met.

See Disguised remuneration (subscriber guide) for examples of such schemes.

From 6 April 2018

  • A new close companies gateway to make it clear the disguised remuneration rules apply to close company participators.
  • The gateway test will include an avoidance purpose test to ensure that it does not catch genuine commercial arrangements or those without an avoidance purpose.
  • Where a section 455 CTA 2010 Loans to participators charge arises at the same time as the Part 7A charge by virtue of the close companies’ gateway, the Part 7A charge will be relieved provided that the section 455 CTA 2010 charge is paid in full by the due date.  
  • See Disguised remuneration (subscriber guide) for more details.

From 5 April 2019

The loan charge

  • A new ‘loan charge’ to apply to all outstanding third party disguised remuneration loans made since 1999:
    • Which if they had been made on 5 April 2019 would have fallen within the disguised remuneration rules
  • The loan charge will be made up of income tax and NIC in respect of the 2018/19 tax year.
  • It will apply to employees and the self-employed who have taken disguised remuneration loans.
  • Information will have to be provided to HMRC regarding these loans by October 2019 or penalties will apply.
  • The loan charge can be postponed for loans that are ‘approved fixed term loans’ on 5 April 2019. See How to postpone your loan charge.

The charge will not apply if by 5 April 2019:

  • The loan is repaid in full;
  • The loan is from an amount on which income tax has been accounted for in full (including under settlement with HMRC); or
  • The loan has already been taxed in full under the disguised remuneration rules.

There are exclusions for:

When do the Disguised remuneration rules apply?

The rules apply if:

  • A person "A"  is a living employee, either former, existing or prospective, of another person "B".
  • There is an "arrangement" to which A (or any person linked to A) is a party to, or which otherwise covers / relates to A.
  • The arrangement is wholly or partly a means of providing the provision of rewards or recognition or loans in connection with A's employment.
  • A "relevant step" in pursuance of the arrangement is taken by a relevant person

A “relevant person” is A or B acting as trustee, or any other person.

A “relevant step” is:

  1. Earmarking: a sum of money or an asset is set aside (e.g. a sum of money placed on trust)
  2. Payment: of a sum of money or transfer of an asset, to a relevant person (e.g. a loan is made available)
  3. Making assets available: an asset is made available to a relevant person without the transfer of the asset (e.g. a benefit is provided).
  4. From April 2017: loan transfers and write off / release of a disguised remuneration loan.

When the rules do apply income tax and NICs (employer and employee) will be charged on the value of the money or asset.


These are listed in s554E to 554X (about 18 pages of "small print") and include:

  • Loans made on a commercial basis (same terms as to the public)
  • Steps which are necessary for the implementation of approved arrangements such as share and pension schemes.
  • From April 2017: payments of tax to HMRC.

National Insurance regulations

The regulations make provision for amounts chargeable to income tax under Chapter 2 of Part 7A of ITEPA 2003 to be treated as earnings for the purposes of 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. .

Recovery of tax from employees

Legislation will be introduced to broaden HMRC’s transfer of liability powers under the PAYE regulations to allow a liability to be transferred to the individual employee if it cannot be reasonably collected from an employer.

Special rules will apply where:

  • An offshore employer is created solely for the purposes of an avoidance scheme.
  • The employer still exists but cannot pay.
  • The employer has been dissolved.

Dissolved employer and DR charges:

In the event that the employer company has been dissolved:

  • It is the employee’s responsibility to return the employment income to HMRC by making a self-assessment return. As a result the employee is responsible for reporting the income and paying the tax to HMRC.
  • The employee will not be liable for any Class 1 NICs unless it is shown that the employee received payments knowing that the employer wilfully failed to deduct tax

Inheritance tax

Depending on the specifics of the planning undertaken it is possible that the trust may be within the relevant property regime despite being, in most cases, an offshore trust.

  • s86 IHTA which relieves EBT's from IHT may not apply which depends upon how the trust deed is drafted.
  • If there a revocable sub-trusts HMRC's view is that an appointment to these can trigger an IHT charge.
  • Following the Supreme Court decision in the Rangers case HMRC have not yet provided details of who they regard as the settlor for these types of trusts, the employer or the employee. This will affect the IHT position.
  • Where the trustees are offshore the liability for the IHT can fall on the settlor and beneficiaries i.e. those who have benefitted from loans from the trust.

Where a settlement has been reached with HMRC and IHT has not been properly dealt with (or not dealt with at all), due to many EBTs being in territories outside the UK, there is a risk that it will be treated as offshore evasion and a correction will be required under the Requirement to Correct regime, which imposes severe penalties from 1 October 2018, in respect of IHT liabilities available for assessment on 17 November 2017.

Cases and GAAR opinions

In July 2017 the Supreme Court issued its judgement in RFC 2012 Plc (in liquidation) (formerly The Rangers Football Club Plc) v Advocate General for Scotland [2017] UKSC 45 and has agreed with HMRC that loans made to employees under the club's EBT loan scheme were in fact remuneration and so subject to tax and NIC

In Oco Ltd and Another v HMRC [2017] UK FTT payments from an EBT into sub trusts were found to be earnings under the Ramsay principle; there was no possibility that the loans from the sub trusts to employees would ever be repaid.

In Barker v Baxendale Walker Solicitors (a firm) & Ors [2017] EWCA Civ 2056 the Court of Appeal found that the solicitors advising on an EBT structure were negligent in not warning their clients that the scheme could fail. The court said that specific warnings should have been given about the significant risk that HMRC may interpret s28 IHTA 1984 (regarding a transfer of shares into an EBT being exempt from IHT) differently to the advisers, causing the planning to fail.

In its fifth opinion on Employee rewards the GAAR opinion panel (GAP) considered loan arrangements with respect to EFRBS planning. The scheme involved various tripartite arrangements between employees, the employer company, a trust and an offshore BVI company which resulted in the employees having outstanding loans from trust. The GAP, found that the entering into of the tax arrangements was not a reasonable course of action in relation to the relevant tax provisions and the carrying out of the tax arrangements was not a reasonable course of action in relation to the relevant tax provisions.


Disguised remuneration (subscriber guide)

How to postpone your loan charge

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