Draft legislation was announced on 9 December 2010 which targets “Disguised Remuneration”. Although aimed at addressing what HMRC perceive to be unacceptable abuse of employee benefit trusts (EBTs) and employer-financed retirement benefit schemes (EFRBS)*, there is considerable concern that this legislation could equally apply to normal commercial arrangements.

As a result of the Disguised Remuneration legislation, a PAYE and NIC charge will arise when a “relevant step” is taken as part of an “arrangement” that results in the provision of a benefit to employee. This could include not only loans out of EBTs or EFRBS but also:

• Deferred bonuses
• Earmarking of funds for employees (but remaining unpaid)
• Non-exempted share plans
• Loans to employees
• Cashless facilities to employees

In the above circumstances (as well as several others not covered), a PAYE and NIC charge may become immediately liable, even in circumstances where:

• there may be no intention to remunerate the employee
• the benefit is never actually received
• the benefit is repaid.

In such cases, the burden of settling the liability will fall on the employer. Although this may be recoverable from the employee, it is quite possible that the employee will have received no additional funds to settle this liability.

The full range of circumstances which could fall within the legislation are far too many to cover here, and will depend on each individual circumstance. This article is simply intended to highlight the issue, and to raise awareness of the types of arrangements which could fall foul of the legislation. It is paramount that businesses are aware that they may have been making “relevant steps” as part of “arrangements” previously, and that continuing to do so could have some unexpected tax implications.

*In their most basic form, planning around EBTs, EFRBS and numerous other strategies is entirely legitimate. EBTs, for example, were traditionally used to warehouse private company shares which had no open market, thus creating a means for employee share ownership. Equally, a vanilla EFRBS is an offshore pension scheme for all employees in a private company who would like the flexibility that such a scheme provides.