Disguised remuneration in latest Finance Bill

The Finance Bill 2017-18 contains the next tranche of legislation on disguised remuneration.

The government has been introducing legislation to tackle existing, and to prevent the future use of, disguised remuneration (DR) avoidance schemes. These schemes have been used by employers, employees and the self-employed, and claim to avoid income tax and NIC on remuneration.

The majority of the legislation has already been enacted in Finance Act 2016, Finance Act 2017 and Finance (No.2) Act 2017. Most of the remaining primary tax legislation was published in draft with a technical note on 13 September 2017 and we commented on it in ICAEW REP 113/17. Additional draft legislation was published on 22 November along with a policy paper setting out impacts.

On 1 December, the government published legislation in Finance (No.2) Bill 2017-19 (referred to as Finance Bill 2017-18) together with a technical note. This will be enacted as Finance Bill 2018.

In broad terms, the Finance Bill legislation relating to employees (clause 11 and Sch 1) and the self-employed (clause 12 and Sch 2) has four main objectives: 

  1. To put beyond doubt that Part 7A applies regardless of whether contributions to DR schemes should previously have been taxed as employment income (para 1 of Sch 1) – for detail, see aforementioned technical notes published on 22 November and 1 December).
  2. To introduce a ‘close company gateway’ intended to put beyond doubt when Part 7A applies to the remuneration of owners of close companies (paras 2-8 of Sch 1) – see technical notes published on 13 September and 1 December.
  3. To impose a requirement to provide information on those subject to the loan charge by 1 October 2019 (paras 10-11 of Sch 1 for employees and Sch 2 for the self-employed) – see technical notes published on 13 September and 1 December.
  4. To amend s689 ITEPA 2003 to enable the tax liability to be collected from employees of non-UK employers and who provided services to a UK end client where the non-UK employer is unable to meet the liability or no longer exists (para 12 of Sch 1) – see technical notes published on 13 September and 1 December.

 For NIC, the 1 December technical paper links to a draft NIC draft statutory instrument and draft primary legislation to remove NIC liability in prescribed circumstances.

HMRC’s technical notes also mention that HMRC would like to discuss settlement terms with all DR scheme users. In our news item A settlement opportunity for loan schemes we drew attention to HMRC’s settlements guidance published on 7 November 2017.

The policy paper published in November sets out the impacts. Interestingly, while stating that the ‘package is unlikely to have a material impact on family formation, stability or breakdown’ and is expected to impact up to 40,000 employed individuals and around 10,000 self-employed individuals, it does acknowledge that some will be unable to repay the loans, agree a settlement with HMRC or pay the loan charge arising on 5 April 2019, and some will become insolvent as a result.