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New measures against disguised remuneration

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HMRC is consulting until 5 October 2016 on a first draft of Finance Bill 2017 legislation introducing changes to tackle disguised remuneration avoidance schemes, as set out in the technical note published at Budget 2016. This consultation includes more detail on the changes outlined in the technical note and includes some new proposals. These include the following:

·         Loan transfers: the purpose of the Finance Bill 2017 legislation is to put beyond any doubt that schemes which result in a loan or other debt being owed by an employee to the third party, whatever the intervening steps, are within the scope of the disguised remuneration rules.

·         Close companies’ gateway: a new close companies’ gateway will be introduced to prevent schemes which claim that the disguised remuneration received by an employee or director of a close company is not in connection with their employment.

·         Release of disguised remuneration loan: in addition to the changes outlined in the technical note, the draft legislation also includes a new provision relating to the write-off, or release, of loans made under disguised remuneration schemes, so that these give rise to an income tax charge (unless this write-off occurs on or after the death of the employee).

·         Denying deductions for employee remuneration: the government proposes that tax relief for employers’ contributions to disguised remuneration schemes should be denied, rather than merely deferred as at present. This would apply to contributions to schemes made on or after 6 April 2017. The government believes this would create a clear deterrent to those considering entering into a disguised remuneration scheme. (This proposal is not included in the draft legislation.)

·         Transfer of liability: the government will amend the PAYE regulations to allow, in specific circumstances, the tax and NICs liability to be transferred from the employer to the employee if it cannot reasonably be collected from the employer. HMRC may seek to transfer the liability where:

o   there is a non-UK employer, solely for the purposes of the avoidance scheme;

o   the employer unable to pay; or

o   the employer no longer exists.

·         The loan charge: this charge will apply to disguised remuneration loans still outstanding at 5 April 2019, but will not apply to loans made before 6 April 1999. The existing exclusions in the disguised remuneration legislation will apply to the loan charge and the charge may be postponed for ‘approved fixed term loans’.

·         Avoiding double taxation: provisions will be included in the legislation to avoid double taxation where a charge applies to a disguised remuneration loan, but there has also been an earlier income tax charge on the same amount.


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