HMRC and legacy remuneration tax arrangements – the changing landscape

21 July 2016

Recent years have meant a sea change in terms of HMRC’s approach to remuneration tax arrangements such as Employee Benefit Trusts and contractor loan schemes, resulting in new legislation, settlement opportunities as well as HMRC’s preparation of key test cases for Tribunal.

The last 6 years have brought the Disguised Remuneration legislation, Accelerated Payment Notices, Follower Notices, and further legislative measures announced in the last budget which will tax any outstanding loans from remuneration structures (due to come in April 2019). This means that for those with outstanding legacy arrangements there is an increasingly stark choice between paying tax early - despite waiting for litigation - or reaching a settlement.

HMRC are still open to discussing settlement of remuneration arrangements but their latest spotlight announcement yesterday makes it clear that transitional beneficial treatment will be withdrawn in March 2017. At the moment, HMRC are following the principle that original amounts they see as “disguised” remuneration should be subject to PAYE and NICs at the historical date but distributions or write off of loans as part of winding up arrangements are then not doubly taxed on the way out. This relief is also currently also extended to any investment growth in the structure - it is this extended relief that is being withdrawn as of 31 March 2017.

The potential financial implications of outstanding arrangements are often matched by concerns around reputation, managing key top level employees and other commercial issues such as due diligence for a sale or flotation, external stakeholder management or simply the need for certainty going forward.

If you have any legacy remuneration arrangements, it’s time to fully understand your options within this rapidly changing landscape – what these changes mean in the future, your potential tax exposure and what settlement with HMRC could look like.

Jessica McLellan
Jessica.mclellan@uk.pwc.com
+44 (0) 207 804 3502

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