Companies are being warned that their efforts to keep top executives happy may come under threat from HMRC’s recent anti-avoidance legislation which is resulting in far wider taxing of bonus payouts than has been the practice in the past.
And Ann Bibby, tax director at the Birmingham office of accountants and business advisers Mazars, has warned firms to be on their guard about schemes promising to get round the problem.
She cautioned: “Our experience so far is that the new provisions are not well understood and businesses should be wary of investing in structures that purport to eliminate income tax and social security on bonuses paid after April 6 this year without a careful analysis of the scheme in the context of these new anti-avoidance provisions.”
At issue is what is known as “disguised remuneration”.
The 2011 Finance Act introduced anti-avoidance provisions designed to target the use of Employee Benefit Trusts (EBTs) and similar offshore trust arrangements aimed at minimising income tax and social security payments.
“However the drafting is wide enough to adversely affect many common remuneration structures, such as deferred bonus schemes, that have not historically been seen as aggressive,” said Ms Bibby.
“Now, if a company arranges with an EBT, Employer Funded Unapproved Retirement Benefit Schemes (EFURBS) or any other third party to take steps to allocate, or earmark, cash or other assets, including shares, for future delivery to its employees, or to anyone connected with or nominated by an employee, there will be an immediate income tax and National Insurance liability on the value of the cash or assets, except in very limited circumstances.”
She advised: “Companies should review any existing trust arrangements, including deferred bonus schemes or share schemes, to see whether these might be caught by the new disguised remuneration provisions, and consider their impact on any future remuneration planning strategies.
“We would be happy to meet with companies to discuss these issues and set out our views.”