The HMRC has released draft legislation designed “to tackle arrangements involving trusts or other vehicles used to reward employees which seek to avoid or defer the payment of income tax or National Insurance Contributions (NIC)”.
These new rules will be of particular interest to employers who operate deferred remuneration arrangements using employee benefit trusts (or other vehicles) or provide benefits above those available in registered pension plans through employer-financed retirement benefit schemes (EFRBS).
The new rules will take effect from 6 April 2011, with some anti-forestalling provisions being applicable from today’s date.
Carol Dempsey, reward partner at PwC commented: “The rules are far reaching and careful consideration will need to be given to establish if the law, if enacted as it is, will have a wider scope possibly impacting on some straightforward employee share plans. We will need urgent clarification from HMRC.
“These new rules may leave employers between a rock and a hard place. The Government, the Financial Services Authority, shareholders and Remuneration Committees all want bonuses to be deferred, and clawed back in the event of poor performance. These new rules are so wide ranging that they actively discourage this. Employees could end up paying 52% tax and NIC before a bonus is paid, even if it is eventually never paid.
“At the moment, we are not sure whether this wide scope is intentional or is a side effect. HMRC say that the new rules are designed to catch “disguised remuneration” and a normal, commercial bonus is not “disguised”. Therefore, we hope that HMRC will as a matter of urgency make it very clear that amendments will be made to ensure that normal bonuses and employee share plans are not caught.”