Disguised remuneration rules ‘still too blunt’

The government should rethink its “blunt” approach to tackling attempts by companies and individuals to avoid tax through ‘disguised remuneration’, a body of chartered advisors says.

Despite welcoming changes to limit the scope of the draft laws in the Budget, the Chartered Institute of Taxation fears that the rules are still likely to impact employers and employees in unintended ways.

“We urge further reflection before the final legislation is introduced,” the CIOT said. “The proposals are moving to taxing the form (involvement of a third party) rather than the substance (reward or loan in connection with the employment) of the arrangement. 

“There are many hard edges which will mean that the legislation will have to be read very carefully to determine whether, in all likelihood inadvertently, the new PAYE/NICs triggers have been activated.”

As it is currently drafted, accountants, employers and HM Revenue & Customs will have to invest “a lot of time and effort” to assess whether a particular arrangement is caught by the rules, due to take effect from April 6 2011.

The institute, which represents more than 15,000 chartered tax advisors, added: “Indeed, we foresee that many employers will need to approach HMRC to determine whether or not their current arrangements are affected.”

More positively, the government’s Budget announcement that it has amended the rules in order to limit the impact on employers and individuals where their arrangements cannot be used for tax avoidance purposes is “welcome”.

“However we remain concerned that if discretion is left to HMRC to decide what arrangements are the right side of the line, and which are not then the position, will always be uncertain and subject to a change of HMRC view,” said CIOT’s employment tax chair Colin Ben-Nathan.

“In effect employers and employees will be ‘taxed by law, untaxed by concession’ and we do not think this is the right basis on which to frame tax law for UK plc. [So] as things stand, we can foresee the Finance Bill clauses being the subject of significant debate and amendment.”

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