HMRC have launched a consultation ‘Tackling disguised remuneration’ which includes more details on the changes to be introduced in Finance Bill 2017 together with some draft legislation.

These were mainly announced at Budget 2016 as part of a package of changes to tackle perceived abuse of the disguised remuneration rules in Part 7a ITEPA 2003.  However, some other new elements have crept into the consultation document.

The main proposed changes are:

1.  Loan transfers

  • Arrangements which result in an employee being indebted to a third party will be treated in the same way as if the third party had made the loan directly.

2.  Close companies

  • A new gateway will be added to put it beyond doubt that loans to close company participators fall within the rules.

3.  Release of disguised remuneration loans

  • Draft legislation clarifies that writing off or releasing disguised remuneration loans results in a tax charge.

4.  Deductions for employee remuneration

  • Tax relief for employer’s contributions to disguised remuneration schemes will be denied unless employment taxes and NICs are paid at the time the contribution is made.

5.  Transfer of liability

  • HMRC’s power to transfer income tax and NIC liabilities to employees will be widened.

6.  The loan charge

  • A new charge will apply to disguised remuneration loans made on or after 6 April 1999 and outstanding at 5 April 2019.

7.  Similar avoidance schemes

  • Changes will be introduced to target schemes by sole traders and partners which depress taxable income by diverting money which is then received back as a loan or other non-taxable amount.
  • This will take the form of a broad rule without a ‘main purpose’ tax avoidance test.
  • Provisions will also be introduced to mirror the loan charge where loans are outstanding at 5 April 2019.

Other minor changes will also be made to the rules on:

  • Double taxation where income tax is paid or due and there is a later disguised remuneration charge,
  • The interaction with the benefit in kind (BIK) rules on beneficial loans.
  • The interaction with Accelerated Payments

The consultation mainly focuses on how the new rules will work for income tax purposes, but they are intended to also apply to NICs and more details will be provided in due course.

Comments are invited up to 5 October 2016.  A further draft of legislation is expected to be consulted on as part of draft Finance Bill 2017.


Our subscriber guide: Disguised remuneration: changes from 2016 onwards

Consultation document: Tackling disguised remuneration