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Tackling disguised remuneration: technical update

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Alongside the Finance Bill, HMRC has published an update on changes made to the proposed disguised remuneration legislation since the draft Bill was published in December. Provisions to strengthen the rules for future use of disguised remuneration schemes is now contained in Schedule 16 to the Bill. This does not cover new powers for HMRC to transfer tax and NICs liabilities from the employer to the employee where a disguised remuneration scheme is used, for which separate consultation will follow. The main changes include:

  • the close companies’ gateway will be deferred until the next Finance Bill for commencement in April 2018;
  • a limit of £10,000 has been added to the loan transfer exclusion (aligned with beneficial loan threshold);
  • the rules on loan releases now put beyond doubt that a charge will apply where an arrangement is entered into under which the borrower becomes the lender; and
  • the exclusion which prevents a charge arising when tax is paid to HMRC now requires payment to have been made as part of a settlement with HMRC, or by submitting an application to agree the payment with HMRC;
  • a new provision to put beyond doubt that clauses in trust deeds, which attempt to prevent a charge by binding the trustees, are ineffective; and
  • employment income arising under the new rules will be treated as earnings for both primary and secondary class 1 NICs.

Legislation for the ‘loan charge’ is now set out in Sch 17 to the Bill. A number of exclusions have been updated and two additional exclusions added:

  • the exclusion for the acquisition of unlisted share schemes has been extended to include quasi-loans; and
  • an exclusion has been added for charges arising where a loan is repaid, although this will not apply where action is taken after the money repayment transaction.

Calculation of the outstanding loan balance will be required to include any disguised remuneration loans which have been deliberately moved to the employer or employee.

The legislation now sets out how the outstanding loan balance is calculated where currencies other than sterling have been used.

A new provision will prevent double charging on notional payments of employment income and on inheritance tax where a disguised remuneration scheme involves a trust.

The rules preventing employer contributions to disguised remuneration schemes from being allowable deductions, unless certain conditions are met, have been extended to include employers who are not carrying on a trade or a property business (clause 50).

Legislation covering use of disguised remuneration schemes by the self-employed is set out in Sch 18 to Finance Bill 2017. New ‘condition E’ has been added to ensure that ordinary commercial arrangements do not come within the scope of the legislation.