‘Disguised remuneration’ legislation is still too complex
We support the government in tackling tax avoidance involving rewards paid via third parties, writes Colin Ben-Nathan, of the Charted Institute of Taxation. But we think the disguised remuneration legislation in the Finance Bill is far too complicated and risks creating problems as well as solving them.
And although the government has amended the draft legislation originally released on 9th December 2010, the scope of the new rules remains extremely wide and the new exclusions that have been included are intricate and heavily qualified.
Altogether the new legislation now runs to some 59 pages (compared with the original 25 pages), it is highly prescriptive and includes some 14 separate tax avoidance tests governing when and how the new exclusions will apply.
We think that employers will face real difficulties in trying to assess how they stand with this new legislation and that they are likely to need to take advice to arrive at a considered view. Even then, that does not necessarily mean that HMRC will agree with the view that has been taken, leaving employers open to potential uncertainty on whether or not tax charges arise and at what point.
We suspect many employers will want to seek clearance from HMRC on their particular arrangements and we wonder whether HMRC has the resources to cope and what the turnaround time will be.
At present, the new legislation is penal and it overrides the longstanding rules under which benefits-in-kind are normally taxed. Notwithstanding the new exclusions, we think it could still impact in mainstream situations involving some employee share plans, some pension schemes, joint ventures, private equity arrangements, smaller businesses, earn-outs and, notably, international businesses looking to locate employees in the UK. Even if these problems are addressed, the approach taken by the legislation risks creating new problems and loopholes.