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July 5, 2016
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More Pressure on Disguised Remuneration Schemes

Government plans are set to put more pressure on users of disguised remuneration schemes; including employers, employees, and the self-employed.  Users of these schemes should consider how best to settle any outstanding liabilities as soon as possible.

Disguised Remuneration Schemes (DRSs)

Whilst each scheme operates differently, promoters of DRSs will often claim that they are an effective way to avoid substantial Income Tax and National Insurance Contributions.

Common characteristics include low or no interest loans that will never be repaid in practice, investments of employee's 'earnings' by third parties, and complex networks of third party trusts and companies (often based outside the UK).

Previous Action

A number HMRC spotlights, guides, targeted campaigns, and settlement offers have been created to encourage users of DRSs to settle their tax/NIC liabilities.

The Finance Act 2011 also introduced new rules in Part 7A ITEPA 2003 to close perceived loopholes in the tax law.

Proposed Changes

Despite past action and after varying success in the courts, the Government has moved to put beyond any doubt that DRSs will be taxed appropriately.

The following changes have already been proposed:

Finance Bill 2016

The Finance Bill 2016 will contain provisions that mean loans to employees, whatever the intervening steps, will be brought within scope of Part 7A ITEPA 2003.

This mirrors the rulings in Boyle v HMRC [2013] and, more recently, Murray Group Holdings [2015] in which complex structures and loans to mask employment income have been largely dismissed by the courts.

PAYE and Employees’ Liabilities

The Government has announced it will move to expand the circumstances in which tax/NICs can be recovered from both employers and employees.

Normally, HMRC will seek unpaid tax/NICs from employers in the first instance as they are responsible for deducting the correct tax/NICs through PAYE.

However HMRC also has the power to make ‘PAYE Directions’ and can recover tax/NICs from employees in limited circumstances.  These powers are set to be expanded.

Investments

Generous rules on the taxation of investments derived from disguised remuneration will be withdrawn for liabilities not settled prior to 30 November 2016.

New Tax Charge

A new tax charge will be levied on all disguised remuneration loans still outstanding by 5 April 2019.

Retrospective Action

The Government has also announced that it may take retrospective action up to 25 November 2015 for any avoidance schemes created following these changes.

Further Help

PD Tax Consultants are experienced in bringing clients’ tax affairs up to date using HMRC’s disclosure and settlement opportunities.

If you have taken part in, or think you may be involved with, a disguised remuneration scheme, we can help you through the process of normalising your affairs with HMRC to get the best outcome possible.

Contact us for a confidential and no obligations chat.

Contact us today to discuss your tax requirements.
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