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Disguised Remuneration 2019 loans charge: Budget update

Disguised Remuneration 2019 loans charge: Budget update

The Budget Statement provided only very brief but potentially significant details of the government’s proposed measure for transferring an income tax liability from an employer to an employee in respect of an April 2019 disguised remuneration loan charge.  Further details will be provided in the draft Finance Bill 2018 and in a specific technical note which is due to be published on 1 December.

Rather surprisingly, the Budget details indicate that the measure should only apply to cases where the employer is based offshore and is, therefore, outside the scope of the PAYE regulations.  In our experience, the vast majority of company EBT and EFRBS’ schemes were set-up by onshore employers and the measure should not, therefore, apply but a considerable number of employers used in “Contractor schemes” were based outside of the UK and, individuals who have used such schemes to avoid income tax on their income from consulting services in the UK, could now face significant liabilities on outstanding loan balances in April 2019.

Anyone who may be caught by the proposed measure should now be considering whether the disguised remuneration settlement terms published by HMRC on 7 November provide a lower cost opportunity to settle any outstanding tax and NIC liabilities compared with the liabilities that will otherwise arise in April 2019.

However, employees (and former employees) of onshore employers who, it appears, should not be affected by the measure (based on the Budget details) are not necessarily “home and dry” should their employer be unable or, for some other reason, fail to meet any PAYE liabilities in relation to their disguised remuneration. The PAYE regulations already provide HMRC with rights to recover liabilities from an employee in certain circumstances. Importantly, the regulations do not rely on whether a loan has been made or is still outstanding but are concerned with the original contribution to an EBT or EFRBS and/or the allocation of the contribution to a separate trust, sub-fund or sub-trust.

Therefore, any employee (or former employee) who has received disguised remuneration but is unaffected by the loan charge in 2019 will still need to understand whether HMRC can make a direction to transfer a PAYE liability to them personally. This will require a careful analysis of the specific facts in each case.  Additionally, and especially in cases where the PAYE regulations do not allow HMRC to recover PAYE liabilities from disguised remuneration paid to directors of a company, it is HMRC policy to use insolvency law in appropriate cases in order to recover unpaid PAYE (and NIC) liabilities from the directors.

We are dealing with a substantial number of disguised remuneration cases and if you would like to discuss your situation, please contact us.