Disguised remuneration: tax avoidance using annuities (Spotlight 35)

Schemes that use annuities to avoid Income Tax and National Insurance contributions don’t work. HMRC will investigate anyone who uses one.

We’re aware of a new disguised remuneration tax avoidance scheme that attempts to avoid Income Tax and National Insurance contributions (NICs). It involves using annuities as an alternative method of paying people for their services, in order to avoid paying tax and NICs on their income.

This scheme doesn’t work and we’ll investigate all users of the scheme.


An annuity is a form of investment where a person pays a lump sum, usually to a pension company, in return for a guaranteed income - either for life or a fixed number of years. Private annuities, such as those used in this scheme, are very rare.

How the scheme works

This scheme is mainly aimed at contractors and involves the scheme user being paid in two parts. The first part is a salary, so small that there’s little or no Income Tax or NICs liability. The second part is claimed to be non-taxable, as it’s a capital payment for a deferred annuity.

The scheme is highly contrived and involves the user agreeing to pay the promoter an income under the annuity from a date of their choosing.

Why you shouldn’t use it

The view of HM Revenue and Customs (HMRC) is that this and other similar schemes don’t work.

Schemes involving annuities are within the scope of the proposed new loan charge, which will apply to all outstanding disguised remuneration loans on 5 April 2019.

What will happen if you use the scheme

HMRC will challenge all users of this scheme and investigate their tax affairs.

Unless the capital sum for a deferred annuity is paid back in full by 5 April 2019, or you settle with HMRC, the new loan charge will apply to the outstanding sum.

For transactions taking place after 16 July 2013, HMRC will consider whether the General Anti-Abuse Rule (GAAR) may apply. After 14 September 2016, transactions where the GAAR applies will be subject to a 60% GAAR penalty.

What to do if you’re using the scheme

Users of this type of avoidance scheme should settle with HMRC as soon as possible. If you don’t you might have to pay additional tax and interest on the outstanding disguised remuneration loans. You could also receive a penalty.

If you haven’t filed your return yet, you should do so on the basis that the payment for the deferred annuity is taxable income.

If you’re already speaking to someone at HMRC about your use of a disguised remuneration scheme, you should contact them.

If you’re not already speaking to someone at HMRC, you should email:

Find out more about how to identify tax avoidance schemes.

Published 14 February 2017