Tackling disguised remuneration
Published 30 March 2016
© Crown copyright 2016
This publication is licensed under the terms of the Open Government Licence v3.0 except where otherwise stated. To view this licence, visit nationalarchives.gov.uk/doc/open-government-licence/version/3 or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: psi@nationalarchives.gov.uk.
Where we have identified any third party copyright information you will need to obtain permission from the copyright holders concerned.
This publication is available at https://www.gov.uk/government/publications/tackling-disguised-remuneration/tackling-disguised-remuneration
Who is likely to be affected
Employers, companies and individuals using tax avoidance schemes that fall within the disguised remuneration legislation. Employers, companies and individuals that used an Employee Benefit Trust (EBT) arrangement prior to 2011 and have yet to settle with HM Revenue and Customs (HMRC).
General description of the measure
As announced at Budget 2016 the government will bring forward a package of changes to tackle the use of disguised remuneration avoidance schemes. The first part of the package is being introduced in Finance Bill 2016 and this tax information and impact note (TIIN) deals with those changes.
The remainder of the package will follow in future Finance Bills and a TIIN will follow the publication of the relevant legislation. More details on the whole package are included within the overview of changes and technical note also published on 16 March 2016.
Inserting an additional TAAR
The measure prevents attempts to exploit the disguised remuneration legislation by inserting an additional targeted anti-avoidance rule (TAAR) with effect from 16 March 2016.
The withdrawal of the relief on investment returns
The measure will withdraw the transitional relief on investment returns after 30 November 2016. The relief was intended to work alongside the EBT Settlement Opportunity, which closed on 31 July 2015. Anyone who has not settled with HMRC on or before 30 November 2016 will not qualify for the relief.
Minor technical changes
The measure will also make three minor technical clarifications to the disguised remuneration legislation to ensure it works as Parliament intended.
Policy objective
This measure supports the government’s commitment to tackling tax avoidance and ensures that those who have used disguised remuneration tax avoidance schemes pay their fair share of tax and National Insurance contributions (NICs).
Background to the measure
These changes are part of a wider package announced at Budget 2016 to tackle the use of disguised remuneration tax avoidance schemes.
Detailed proposal
Operative date
The insertion of the additional TAAR will be effective from 16 March 2016. The withdrawal of the relief on investment returns will have effect after 30 November 2016.
Current law
Finance Act (FA) 2011 inserted the disguised remuneration rules in Part 7A of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003).
The current law that is subject to attempted exploitation is contained in section 554Z8 of ITEPA 2003. This section reduces the amount subject to a charge under the disguised remuneration legislation when certain conditions are met.
The current law for the transitional relief on investment growth is contained in paragraph 59, Schedule 2 to FA 2011. The relief prevents the disguised remuneration rules from applying to investment growth accrued on amounts of disguised remuneration. This applies where tax has been agreed and paid on the basis that the disguised remuneration was earnings from the employment.
Proposed revisions
Inserting an additional TAAR
One type of disguised remuneration avoidance scheme seeks to exploit a perceived weakness in section 554Z8 of ITPEA 2003. Legislation will be introduced in Finance Bill 2016 to add an additional TAAR within that section. The TAAR will put beyond doubt that the scheme does not work by preventing the relief in section 554Z8 from being available where there is a connection, direct or indirect, with a tax avoidance arrangement. The change will be effective from 16 March 2016.
The withdrawal of the relief on investment returns
Users of a disguised remuneration scheme, usually an EBT, prior to the introduction of Part 7A of ITEPA 2003 have had the option of utilising paragraph 59, Schedule 2 to FA 2011. Paragraph 59 allows those who have settled with HMRC to obtain relief from a charge under Part 7A ITEPA 2003 on any relevant steps taken after settlement. This applies equally to the amount of disguised remuneration and any growth in the value of the disguised remuneration.
Legislation will be introduced in Finance Bill 2016 to restrict paragraph 59 relief to the value of the disguised remuneration. Any investment growth on the disguised remuneration that is included within a relevant step will be liable to a charge under Part 7A of ITEPA 2003. This will apply to situations where the conditions of paragraph 59 are met after 30 November 2016.
Those that have already met, or will meet, the conditions of paragraph 59, on or before 30 November 2016 will not be affected by this measure.
Minor technical changes
Legislation will be introduced in Finance Bill 2016 to make a technical change to section 554Z2 Part 7A of ITEPA 2003. In order to prevent double taxation it will be possible to apportion the value of a relevant step where the relevant step creates a charge on more than one person simultaneously.
Legislation will be introduced in Finance Bill 2016 to make two technical changes to Schedule 2 to FA 2011. It will put beyond doubt that the payment of an Accelerated Payment does not constitute a payment of tax for the purposes of the relief in paragraph 59, and an expired power at paragraph 64 will be removed.
Summary of impacts
Exchequer impact (£m)
| 2016 to 2017 | 2017 to 2018 | 2018 to 2019 | 2019 to 2020 | 2020 to 2021 |
|---|---|---|---|---|
| +100 | +335 | +645 | +1,235 | +215 |
These figures are set out in Table 2.1 of Budget 2016 as ‘Disguised remuneration: tackling historic and new schemes’ and have been certified by the Office for Budget Responsibility.
These figures reflect the full package of changes to tackle disguised remuneration avoidance schemes announced at Budget 2016, some of which will be legislated in future Finance Bills and so are not reflected in this note. More details can be found in the policy costings document published alongside Budget 2016.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
The measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
There is no reason to suppose this measure will have a significant or disproportionate impact on groups with legally protected characteristics as recognised in the Equality Act 2010.
Impact on business including civil society organisations
This measure will have no impact on businesses and civil society organisations who are undertaking normal commercial transactions; it will only impact on the businesses that are engaging in avoidance.
Operational impact (£m) (HMRC or other)
It is not anticipated that implementing this change will incur any additional costs or savings for HMRC.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be monitored through disclosures of new avoidance schemes to circumvent the measure, and through communication with affected taxpayers and practitioners.
Further advice
If you have any questions about this change, please contact the Employment Income Policy Team by email at: employmentincome.policy@hmrc.gov.uk.