A consultation has been released outlining the proposed expansion of the disguised remuneration legislation.
This consultation picks up on the Chancellor's announcement at Budget 2016 and deals with four specific issues - Changes to tackle the continued use of disguised remuneration (DR) arrangements, changes to introduce a charge on loans made prior to the introduction of the DR rules, transferring the liability to employees in certain cases, and extending the DR legislation to self-employed persons. The consultation also reiterates the Government's intention to use retrospective action should promoters continue to develop arrangements in response to these changes. The proposal is that the changes will be introduced in Finance Bill 2017.
Continued use of schemes
The proposals cover the following:
When the DR provisions were introduced in 2011, a decision was made by HMRC to grandfather loans made prior to 9 December 2010. HMRC are now proposing to introduce a new loan charge from April 2019 to tax such loans.
In summary, if such a loan is outstanding on 6 April 2019 and the loan was made after 5 April 1999, the full amount outstanding on 6 April 2019 will generally be taxed at that time. Relief is proposed for cases where the employer has settled PAYE and NIC on or about the time of contribution (e.g. under the Employee Benefit Trust (EBT) settlement opportunity) and as a consequence the loan amount will already have effectively been taxed.
Transfer of liability
The consultation also deals with a proposed extension to HMRC's powers to pursue the employee rather than the employer when a DR arrangement is used. HMRC believe that the current rules need supplementing in cases including the following:
Extension to self-employed persons
HMRC also intend to extend the DR provisions to self-employed individuals and members of partnerships as they believe that some taxpayers are seeking to depress profits by diverting funds to third parties and then drawing on those funds by way of loan/benefit.
Responses to the consultation, including on areas where the proposals could impact non-avoidance arrangements, are requested by HMRC by 5 October 2016 and KPMG in the UK will be responding to the consultation in due course.
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