HM Revenue & Customs (HMRC) last week produced a revised version of its Frequently Asked Questions (FAQs) on the vexed subject of disguised remuneration. Please click here to read them.
Disguised remuneration is the widely used but still unofficial term for a set of provisions which can impose up-front income tax and NIC charges when third parties (such as trustees of employee trusts) agree to provide shares or other remuneration. This can be ahead of the date when the actual remuneration is received from those third parties which has historically been the taxing point. These provisions are included in the Finance Bill, which is currently going through its final stages in Parliament, meaning that few further changes can now be made.
As set out in our previous Law-Nows on this subject (see Disguised Remuneration - Employee Trusts and Disguised Remuneration – An update for employee share plans), the particular challenge for quoted company share plans is where companies use employee trusts to satisfy awards. This includes situations where employee trusts already hold or acquire shares which may be used to satisfy awards.
Because of this, it is comforting that HMRC have now again acknowledged in the reissued FAQs (after a month or so of further uncertainty) that normal quoted company hedging which occurs using trusts should not in principle give rise to tax issues. This is provided that the trust does not make the award and does not know the number of shares allocated to particular employees.
Even where there is a link between the trust's shares and the employee award that should not be fatal for most mainstream arrangements.
This is because the FAQs also give reassuring guidance on what terms can be contained in awards which trustees may make and/or agree to satisfy and still fall within the exemptions from the tax charge. However, as has been the general story of this legislation, comfort emerges from HMRC drip by drip and there are still other issues still to be resolved.