Disguised remuneration is a term that is perhaps used in a negative light to describe financial arrangements set up with the sole objective of avoiding any liability for taxes due on income, usually Pay As You Earn (“PAYE”) and National Insurance Contributions (“NICs”).
Disguised Remuneration schemes have gained this separate title to distinguish themselves from tax schemes which were at one point considered a valid component of tax planning within every business. However, the increased use of such schemes (and thus the deprivation of increased amounts of tax receipts to the Treasury) led the government having to introduce legislation to prohibit the use of such schemes set-up solely for the purpose of evading tax.
Initially these tax schemes were designed to enable payments which could simultaneously be deducted from corporation tax as an expense, but the use of director’s loan accounts to draw income perhaps led to tax scheme loans, comprising Employee Benefit Trusts, and unregulated pension schemes, known as Employee Financed Retirement Benefit Schemes, where the “loan” nature of the payment was relied on to avoid any charge for tax.
Legislation, initially introduced between 1999 – 2001, initially dealt with what is referred to as “anti-avoidance measures” including the diversion of income and the use of Service Companies mitigate tax.
Further legislation introduced in 2003 (commencing 2004) sought to redefine and clarify what employment and income referred to, with the attempt to qualify who fell within the PAYE/NIC tax provisions, although the collection of PAYE/NIC has faced continuing problems (despite a number of amendments since) due to the ever changing nature of the tax schemes adopted.
This problem of interpretation led to numerous legal changes culminating most recently in the Finance Acts 2017, and the associated loan charges which may be levied on any person or business participating such schemes from April 2019.
As of writing, there is an opportunity available for the participants in such schemes to declare such schemes to HMRC with a view to avoiding the payment of liabilities which may arise as a result of the introduction of loan charges in April 2019.
Whether you are knowingly involved in such a disguised remuneration scheme (which is not always the case), or have concerns as regards as to your tax liability arising out of such schemes, then you should seek advice on your scheme and your rights, obligations and the options available to you as follows (where we have provided further commentary):
- What is disguised remuneration?
- Disclosure of Tax Avoidance Schemes
- Legal Changes and Loan Charges
- Employee Benefit Trusts
- Employer Financed Retirement Benefit Schemes
- Close Companies Gateway
- General Anti Abuse Rule
It is not always the case that you are a participant or involved in a tax avoidance scheme, and indeed it may be that you bear no liability for any taxes which may arise until you review your scheme documentation and establish whether the actual trust arrangements and any other contractual aspects have been established.
Accordingly, it is vital that you receive immediate accounting and legal advice on such matters and, if you are liable, assistance in mitigating such liability and making the appropriate declarations.
At Francis Wilks & Jones we have considerable experience of assisting Directors and business owners with regard to such schemes and your potential liability, particularly with regard to claims arising out of insolvency or claims for breach of a director’s fiduciary duties.
Please call any member of our Tax Disputes Team for your consultation now on 0207 841 0390. Alternatively email us with your query at firstname.lastname@example.org and we will call you back at a time convenient for you.