Following the statement made by the Chancellor in the Spring 2016 Budget, further changes may be made to legislation to combat what has been commonly termed as 'disguised remuneration'.


The primary target of disguised remuneration (DR) is the employee benefit trust (EBT) which received contributions from an employer, with such contributions being used to either make: (i) investments which are earmarked for a specified employee; or (ii) a loan to the employee.

When the DR legislation was first introduced in 2011 it was reasonably successful in putting an end to remuneration arrangements based on EBTs, and various settlement opportunities offered by HMRC allowed employers and employees alike to settle tax liabilities on favourable terms. However, the Government is concerned that many employers and employees have continued to operate their historic EBTs without coming forward to settle the tax liabilities that HMRC regard as having arisen on contributions to the EBTs (or loans made by the EBTs).

The measure

The Spring 2016 Budget announcement has introduced a number of measures in respect of the DR legislation, however the most significant relates to outstanding loans from EBTs:

Basically, where a loan was made to an employee by an EBT before the DR legislation came into effect (i.e. prior to 9 December 2010), a new tax charge (through PAYE and NIC) will arise on all outstanding loans at 5 April 2019, if the loan is not repaid on or before that date and no settlement has been agreed with HMRC.

Previously, DR did not have retrospective effect - only loans made after 09 December 2010 were in scope. The Chancellor's proposal is therefore significant. As at 5 April 2019, any outstanding loan or similar payment from an EBT will be treated as if it were a taxable bonus subject to PAYE and NIC as at that date.

Who will be affected?

The measures will potentially impact any employers who used EBTs in the delivery of remuneration to their employees.

This new tax charge will fall initially on the employer and therefore the settlor company will be required to administer PAYE and NIC. However, the Chancellor's proposals also suggest that if the employer is unable to pay the tax charge, then the individual employee may become liable directly. Employers and employees may therefore need to consider repaying any outstanding loans before April 2019 (or otherwise reaching a settlement with HMRC in respect of the arrangement) in order to avoid DR charges.

Settlements with HMRC currently benefit from a transitional rule where investment growth from EBT funds is not subject to PAYE and NIC, however this relief is being withdrawn from 30 November 2016.

Next steps

We understand that a technical consultation is scheduled to take place this summer as there are a number of practical considerations that will need to be thought through before this proposed new legislation can be introduced. There is likely to be considerable debate on this, given the retrospective nature of the proposals, however, it is understood that the legislation will ultimately be enacted along the lines of the initial proposals.

HMRC's formal EBT settlement opportunity has now closed, however, we understand that HMRC are still open to discussing settlement options and a settlement may therefore be achievable in advance of the current April 2019 target date.

WB's view

The measures in respect of 'new arrangements' are no surprise given the Government's focus on this form of avoidance, and should help to ensure that the legislation works as originally intended.

The retrospective move against historic third party loans made to current or former employees before 9 December 2010 was unexpected and is likely to be difficult to enforce

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