© Crown copyright 2017
This publication is licensed under the terms of the Open Government Licence v3.0 except where otherwise stated. To view this licence, visit nationalarchives.gov.uk/doc/open-government-licence/version/3 or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: firstname.lastname@example.org.
Where we have identified any third party copyright information you will need to obtain permission from the copyright holders concerned.
This publication is available at https://www.gov.uk/government/publications/disguised-remuneration-further-update/disguised-remuneration-further-update
Who is likely to be affected
Employers, companies and individuals using tax avoidance schemes that fall within the disguised remuneration legislation in respect of employment or self-employment income.
Employers, companies and individuals that have used a disguised remuneration scheme and have yet to settle with HM Revenue and Customs (HMRC).
General description of the measure
This measure is the final part of the legislation necessary to implement the package of changes announced at Budget 2016 to tackle existing and prevent future use of disguised remuneration avoidance schemes.
The majority of the changes needed have already been legislated in Finance Act 2016, Finance Act 2017 and Finance (No. 2) Act 2017. This tax information and impact note (TIIN) details the package that the government will introduce in Finance Bill 2017-18.
The legislation covered by this measure will build on what has already been enacted to:
prevent the future use of disguised remuneration schemes by strengthening the existing rules in Part 7A of Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003). The changes relate to how Part 7A of ITEPA 2003 applies to the remuneration of employees, and directors, who have a material interest in their close company employer by adding the close companies’ gateway. The measure will also put beyond doubt that Part 7A of ITEPA 2003 applies regardless of whether contributions to disguised remuneration avoidance schemes should previously have been taxed as employment income
tackle the existing use of disguised remuneration schemes with the new charges on disguised remuneration loans outstanding on 5 April 2019 (the ‘loan charge’). The changes introduce a requirement for employees and self-employed individuals to provide information to HMRC by 1 October 2019 about their disguised remuneration loans to ensure the loan charge is complied with. The changes will also ensure the liabilities arising from the loan charge are collected from the appropriate person where the employer is located offshore
More information on all the changes can be found in the technical note published on 1 December 2017.
This measure supports the government’s commitment to tackling tax avoidance and ensures users of disguised remuneration schemes pay their fair share of Income Tax and National Insurance (NICs).
Background to the measure
These changes are part of a wider package of changes announced at Budget 2016 to tackle disguised remuneration schemes.
The close companies’ gateway will have effect from 6 April 2018.
The clause which puts beyond doubt that Part 7A of ITEPA 2003 applies regardless of whether the amount contributed to the scheme should previously have been taxed as employment income will have effect from 22 November 2017.
The requirement for additional information to be provided to ensure the loan charge is complied with will take effect from Royal Assent to Finance Bill 2017-18.
The change to ensure the loan charge liability is collected from the appropriate person where the employer is offshore will have effect from Royal Assent of Finance Bill 2017-18.
Finance Act 2011 introduced Part 7A of ITEPA 2003, commonly referred to as the ‘disguised remuneration rules’.
Schedule 11 of Finance (No.2) Act 2017 introduced the loan charge.
Schedule 12 of Finance (No.2) Act 2017 introduced the self-employed loan charge.
Section 689 of ITEPA 2003, often referred to as the ‘host employer’ rules, ensures PAYE is operated by an entity with a UK presence on work carried out in the UK.
Legislation will be introduced in Finance Bill 2017-18 to:
make clear when Part 7A of ITEPA 2003 applies to disguised remuneration schemes used by the owners of close companies
amend Chapter 1 of Part 7A of ITEPA 2003 to clarify the scope of the interaction between the disguised remuneration rules and other tax charges
introduce a duty to provide information of outstanding disguised remuneration loans to HMRC for users of disguised remuneration schemes
make a change to section 689 of ITEPA 2003 to ensure that the employee who benefitted from the disguised remuneration avoidance scheme is liable for the tax arising on the loan charge where their employer is based offshore
Further information on these changes can be found in the technical note published on 1 December 2017.
Summary of impacts
Exchequer impact (£m): Disguised Remuneration: Tackling historic and new schemes
|2016 to 2017||2017 to 2018||2018 to 2019||2019 to 2020||2020 to 2021|
These figures were set out in Table 2.1 of Budget 2016 as ‘Disguised remuneration: Tackling historic and new schemes’ and have been certified by the Office for Budget Responsibility.
The figures reflect a full package of changes to tackle disguised remuneration avoidance schemes announced at Budget 2016, some of which have been legislated in earlier Finance Acts and so are not reflected in this note.
This measure helps to ensure that the yields estimated at Budget 2016 will be achieved. More details can be found in the policy costings document published alongside Budget 2016
Exchequer impact (£m): Disguised Remuneration: Extend to self-employed and remove company deduction
|2016 to 2017||2017 to 2018||2018 to 2019||2019 to 2020||2020 to 2021|
These figures were set out in Table 2.1 of Autumn Statement 2016 as ‘Disguised Remuneration: Extend to self-employed and remove company deduction’ and have been certified by the Office for Budget Responsibility.
The figures reflect a full package of changes to tackle self-employed disguised remuneration avoidance schemes and company deductions for disguised remuneration schemes which were announced at Autumn Statement 2016, some of which have been legislated in earlier Finance Acts and so are not reflected in this note. This measure helps to ensure that the yields estimated at Autumn Statement 2016 will be achieved. More details can be found in the policy costings document published alongside Autumn Statement 2016.
This measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
This package is not expected to have a material impact on family formation, stability or breakdown.
The disguised remuneration package is expected to affect up to 40,000 individuals who have entered into disguised remuneration avoidance schemes. This measure will also affect individuals who are self-employed and trading on their own account or through a partnership and have entered into disguised remuneration avoidance schemes. The measure is expected to affect up to 10,000 self-employed individuals who have entered into disguised remuneration avoidance schemes.
Some of these individuals will be unable to repay the loans, agree a settlement with HMRC before 5 April 2019, or pay the loan charge arising on 5 April 2019. The government anticipates that some of these individuals will become insolvent as a result.
This measure will affect those of a working age or older who have used disguised remuneration avoidance schemes.
It is not anticipated that this measure will have a significant, or disproportionate, impact on groups with protected characteristics as recognised in the Equality Act 2010.
Impact on business including civil society organisations
This measure is only intended to impact on businesses that are engaging in avoidance schemes.
It is expected to have no impact on the administrative burdens of compliant businesses and civil society organisations who are undertaking normal commercial transactions.
Operational impact (£m) (HMRC or other)
HMRC received additional financial resources at Budget 2016 to resource the disguised remuneration package.
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be monitored through disclosures of new avoidance schemes and through communication with affected customers and practitioners.
If you have any questions about this change, please contact the Income Tax Structure & Earnings Team by email: email@example.com.