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Disguised Remuneration

15 September 2017

HMRC’s ongoing efforts to tackle disguised remuneration tax avoidance schemes have led to the inclusion of 15 pages of complex draft legislation. The background note explains that “the changes will ensure that users of disguised remuneration schemes pay their fair share of tax and National Insurance Contributions”.

The draft legislation includes two main provisions: a ‘close companies’ gateway’ and ‘loan charge additional information’.

Close companies’ gateway (CCG) - this additional gateway specifically targets employment income provided through third parties (by amending part 7A ITEPA 2003). This is intended to put beyond doubt when Part 7A applies to the remuneration of owners of close companies. Essentially, where a close company meets all the conditions of the new gateway, a Part 7A charge will arise.

The conditions include any arrangements where the avoidance of tax is one of the ‘main purposes’ and which are intended to benefit an employee who has some influence over the close company that employs them. The CCG will commence on 6 April 2018 (1 April 2018 for corporation tax purposes) to allow for further consultation.

Loan charge additional information – this includes changes to the new charge on outstanding loans from disguised remuneration schemes (the loan charge) legislated in Finance Bill 2017. It is clear that the new legislation is to both strengthen the current rules and augment the new charge on disguised remuneration loans that remain outstanding on 5 April 2019. The charge was introduced by the Summer Finance Bill 2017 which is currently before parliament.

The charge on outstanding loans will already put significant pressure on users of disguised remuneration arrangements, whether there is a current HMRC enquiry or not. The draft 2018 legislation includes a requirement for additional information to be provided to HMRC in respect of the loan (or quasi loan) arising as a result of participation in a disguised remuneration scheme. The information required is substantial and there is a limited period in which this needs to be provided (6 April 2019 – 30 September 2019), otherwise penalties will be levied. The aim is to increase pressure on users of disguised remuneration arrangements.

Anyone potentially caught by the legislation will need to take advice and check whether they meet the conditions for providing the information.

HMRC is aware that many employers and employees will not want to wait until 5 April 2019 to start addressing this issue. It has confirmed that high-level settlement terms will be published “so that all DR users have a clear indication of what they will need to pay to settle with HMRC”. We expect the settlement opportunity to be published at the end of September 2017.

If you would like advice or guidance on how to manage to impact of the changes announced in the Winter Draft Finance Bill 2017 to 2018 please get in touch.

Read more on the Draft Finance Bill