From our previous Law-Nows, you will have seen that the Government proposed legislation in December 2010 which would cause an automatic income tax and NIC charge to arise on "disguised remuneration" arrangements. It catches the following situations: 

  • "earmarking" funds for an employee (in effect reserving them for the employee, without any formal declaration of ownership, which could include shares intended to meet a share award if it vests)
  • pay money or transfer an asset for an employee's benefit
  • make an asset available for an employee's benefit.

The draft legislation published in December 2010 clearly captures loans from trusts and also unapproved pension arrangements (eg EFRBS). As the proposed tax charge is on the full amount of the funds in question, there was understandable concern as there was no potential for reclaiming the tax if the share award or other remuneration did not ultimately vest or was not exercised because performance conditions were not met or the employee left. For more details on the proposed legislation, please click here to view our earlier Law-Now.
 
The Revenue has been consulting widely on this draft legislation since publication, implicitly accepting the criticism that it was too broad and needed to be adapted to allow the operation of normal employee share plans.  While there are limited exemptions for standard employee share plans and the Revenue has already given some informal comfort in the form of the FAQs that they will extend these, they are not currently wide enough for most practitioners to be comfortable that no up-front and unintended charges arise for all normal employee share plan arrangements (for more details on the FAQs please click here to view our earlier Law-Now). We had hoped that the Budget would say more on this, given that the legislation will come into effect on 6 April. However, the Government announced today that the relevant updated draft legislation will not be published until 31 March.
 
While this is dangerously close to the start of the tax year, we are still recommending that clients work on the basis that standard employee plans should continue to be operated as normal, although they may need to be prepared for sudden changes before the end of this tax year.

We will provide a further update on 31 March.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 23/03/2011.