Disguised remuneration describes earned income received via a scheme as a loan or some other non-taxable distribution which disguises the payment of income. If this scheme falls within the definition of a disguised remuneration scheme, an account of the tax liabilities on this income may have to be made to HMRC, even some years later.
The rise of such disguised remuneration has led to changes in the finance and tax legislation designed to prohibit the use of such schemes, and anti-avoidance generally.
The most common form of disguised remuneration in recent years are the creation of schemes commonly referred to as
- Employee Benefit Trusts; and
- Employer Financed Retirement Benefit Schemes,
both of which have been identified by HMRC as disguised remuneration schemes.
To read more about Disguised Remuneration, how these schemes traditionally work and recent legal changes, please click here.
If remuneration is disguised as a loan or some other vehicle enabling a payment of monies or transfer of assets without consideration, it will generally fall within the ambit of disguised remuneration and be liable to taxation. Whilst the Finance Act 2011 disposed of claims previously made against Corporation Tax liabilities, the Finance Acts 2017 (there are two) made make such “loans” subject to a tax charge, of up to 50%, from April 2019.
- however, not all Employee Benefit Trusts and Employer Financed Retirement Benefit Schemes may fall under these rules – it depends a lot on construction of the scheme, whether such sums are to be repaid and other issues which are dependent on that schemes construction;
- going forward, the use of such disguised remuneration schemes is almost certainly likely to dwindle although it is conceivable that other tax schemes may fill the space left on the basis of the market’s general desire to avoid tax liabilities.
At Francis Wilks & Jones we have considerable experience of tax legislation and defending claims by HMRC or liquidators appointed over companies which face similar difficulties and can assist you with any negotiations with HMRC, appeals to tax tribunals or insolvency claims. Please call any member of our tax disputes team for a consultation today