United Kingdom
21 February 2011 - HMRC publishes FAQs on disguised remuneration
HMRC has published FAQs on the draft legislation on disguised remuneration.
The FAQs clarify the impact of the proposed legislation in areas where concerns have been raised, and announce various amendments designed to remove unintended tax charges.
The main points include:
- The new rules will not apply to remuneration which is deferred under the FSA's Remuneration Code, provided certain conditions are met.
- The new rules will not apply to the allocation of shares to employees to meet future tax liabilities under an employee share plan or long term incentive plan, provided certain conditions are met.
- The new rules will not apply to the reinvestment of earmarked money or assets where the money or assets are not applied in favour of the employee.
- Group companies will not be treated as third parties unless there is a tax avoidance purpose.
- The definition of 'trustee' will be amended so that direct employer/employee transactions will not be caught where the employer holds a sum of money as part of an arrangement.
- The "substantial proportion" of employees to whom an employee benefits package needs to be offered in order for certain transactions to be excluded means "at least 50 per cent of employees".
- Sacrificing salary in return for tax-free or tax-advantaged benefits does not in itself constitute tax avoidance.
- A tax charge under the new rules will not apply to income or gains arising from earmarked assets.
- Credit will be given for the market value of an asset sold by an employee against the sum paid for it by the third party.
- It is not intended that the new rules will apply to dividends received by employees following a share transaction.
- A change of trustees will not in itself trigger a tax charge under the new rules.
- No credit will be given for loan repayments, where the loan was made from 6 April 2011.
- The new tax charges will not apply to wholly unfunded retirement benefits schemes, but the draft legislation will be amended to address arrangements where, for example, employers provide asset-backed security.
- There will be no double tax charge on the receipt of EFRBS benefits which have already been subject to a tax charge under the new rules.
- Construction industry holiday pay schemes will be excluded.
These announcements substantially remove concerns that the new rules would catch innocent arrangements, and provide useful clarification on some practical aspects of the operation of the rules with regard to remuneration via third parties.
We now await the detailed final legislation which will enable advisers and clients to take remuneration planning forward under the new regime.