HM Revenue & Customs (HMRC) has published a set of frequently asked questions (FAQs) on the scope and application of the draft anti-avoidance legislation on ‘disguised remuneration’, published in December 2010.

The disguised remuneration legislation is intended to target third party arrangements involving trusts (but not registered pension schemes) and other vehicles such as EFRBS, that can be used to avoid, reduce or defer liabilities to income tax or to avoid the forthcoming restrictions on pensions tax relief (see previous bulletin).

The FAQs address issues raised in relation to the scope and application of the draft legislation, and indicate where changes may be made to this. Some such points are:

  • the FAQs clarify that ‘genuine’ EFRBS, e.g. those which do not provide loans to their members, will be within the scope of the new tax charge;
  • ‘wholly unfunded unapproved retirement benefit schemes’ will not be within the scope, but arrangements which are securitised through assets held by the employer will be caught; and
  • it is improbable that an unfunded unapproved retirement benefit scheme promise recorded as a balance sheet liability of the employer will trigger the tax charge (however, HMRC further states that ‘this will depend on the facts of the case’).

HMRC has said that it intends to publish an expanded set of FAQs once they have worked through other issues raised by respondents.