Currently, the Finance Act 2011 provides tax relief on amounts earned in disguised remuneration schemes (employee benefit trusts), with a tax charge applying only to the amount invested. This relief is due to be withdrawn as part of the Government’s crackdown on employee benefit trusts. In order to encourage settlement of tax liabilities, HMRC have announced that the window for claiming this relief has been extended until 31 March 2017. Users of disguised remuneration schemes will need to settle their liabilities with HMRC before this date.

In order to settle their liabilities on the more favourable terms currently offered, users need to notify HMRC before 31 October 2016 of their intention to settle. Information about the disguised remuneration scheme needs to be provided to HMRC either by 31 October 2016 (if HMRC is calculating the liability) or by 31 December 2016 (if the user is calculating their own liability). An agreement as to the amount of liability will then need to be reached between HMRC and the user by 31 March 2017.

From 1 April 2017, a tax charge under Part 7A Income Tax (Earnings and Pensions) Act 2003 will apply to disguised remuneration scheme investment returns when they are distributed to the employee (regardless of when the returns are accrued). Relief will continue to apply only if the earnings charge on the original disguised remuneration has been settled prior to withdrawal of the relief.

More information is available on the website.

By Katie Whitford