The Treasury published draft legislation today (9 December) which is intended to tackle tax avoidance using “disguised remuneration”. In particular HMRC is looking to clamp down on arrangements involving trusts or other vehicles which are used to reward employees and which seek to avoid or defer the payment of income tax or national insurance contributions. This legislation will take effect from 6 April 2011 and also contains anti-forestalling provisions which will prevent action being taken after today to avoid the new rules.
The clamp-down is not surprising. It follows a “Spotlight” announcement by HMRC last year, in which HMRC stated it would investigate tax returns where trust arrangements had been used. It also follows a couple of recent significant court and tribunal wins for HMRC where HMRC has successfully challenged structures which sought to use trusts to deliver tax and NICs savings.
We do not expect the arrangements to impact upon the use of employee benefit trusts for genuine commercial purposes – including as a warehouse for shares for share schemes – but companies should take care over the operation of their trust arrangements. In particular, trustees should be genuinely exercising any discretions given to them under the trust and not simply slavishly following “letters of wishes” from the company.