Disguised Remuneration

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The Treasury has recently issued a consultation draft of the legislative proposals for inclusion in the 2011 Finance Bill which is due to be published on 31 March 2011. The legislation is complex (26 pages) and far reaching. It is aimed at arrangements involving trusts and other vehicles to avoid, reduce or defer liabilities to income tax and national insurance on rewards of an employment. Although the legislation is not due to take effect until 6 April 2011, anti-forestalling measures affect the tax position of certain benefits provisions from 9 December 2010 to 5 April 2011.

The main points are:

  • The value of funds earmarked within EBTs and similar vehicles in respect of reward or recognition of an employee after 5 April 2011 will be subject to PAYE/NI deductions at that time
  • The provision of new benefits by EBTs and similar vehicles to former employees after 5 April 2011 will be subject to PAYE/NI deductions based on the value of the capital providing the benefit; if the benefit provided is the payment of a sum of money (including by way of loan) or the provision of an asset to secure a payment by way of loan, there are anti-forestalling provisions which apply from 9 December 2010
  • Existing benefits to employees and former employees will continue to suffer income tax under the old rules
  • The obligation to pay the PAYE/NI falls with the employer but this obligation is released where the third party accounts for it
  • All such benefits subject to tax will be qualifying for the purposes of a deduction in computing the taxable profits for the employer
  • There are specific exclusions to the new rules for approved share schemes, registered pension schemes and flexible benefit arrangements
  • The potential scope of the proposals is much broader than anyone (even HMRC, perhaps) anticipated, and may apply to employer arrangements that do not involve EBTs and similar vehicles

As advised, the provisions are complex and we propose working with other specialists in this area. Click HERE to view the briefing produced by ITEPAdvisors giving more detail to the proposed changes.  We anticipate that this briefing will be of particular interest to the following:

  1. Employers who have or are considering establishing or contributing to Employee Benefits Trusts or Employer-Financed Retirement Benefit Schemes.
  2. Employers who make awards under deferred remuneration plans (whether cash-based or in the form of share incentives).
  3. Employers who participate in group-wide deferred remuneration plans (eg, UK subsidiaries).
  4. Employers who are required to comply with the EU Capital Requirements Directive (CRD3) as it applies to remuneration -  The FSA Remuneration Code, the Alternative Investment Fund Managers Directive, the Committee of European Banking Supervision guidelines, etc.
  5. Individuals who are beneficiaries of employee trusts


Rob Menhenitt
17 December 2010 


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The information in this notice is intended for general guidance only.
Throgmorton does not accept any responsibility for losses incurred to any person acting or refraining to act as a result of the information in this notice. Advice should be taken in the context of specific circumstances.