Fri, 1 Apr 2011

Fears over new tax rules

Specialist tax advisers have warned of complexity and ambiguity over the Government’s plans to clamp down on ‘disguised remuneration’ schemes that attract lower rates of income tax and National Insurance Contributions. Vehicles such as Family Benefit Trusts (FBTs) and Employer-Funded Retirement Benefit Schemes (EFRBS) may be categorised as ‘disguised renumeration’ under the proposals.

Matthew Brown, technical officer for employment taxes at the Chartered Institute for Taxation, said the rules could mean that deferred remuneration, for example in the banks, could attract a tax charge at the point of transfer to a trust, even though they may be subject to forfeiture and never actually be paid to the employee.

The Revenue has promised to exclude non-taxable benefits such as season ticket loans supplied by a company to an individual seconded to another firm within the same group. This could appear as taxable under the new rules as it would appear as being provided by a ‘third party’.

Brown told Payroll World: ‘There is no intention for those to be taxed, but if you word legislation in a certain way it may become so.’ He said he had no problem with the Revenue clamping down on footballers from overseas avoiding tax by having their pay transferred to offshore trusts which loan them money, and then write off the loans when they leave the UK.

‘In our view, the Revenue need to go back to the drawing board and think again, but in their view they just need to tweak how it’s worded,’ he said.

Mark Groom, partner in the employment taxes group at tax giant Deloitte, added: ‘The complexity of the legislation will cause some concern, particularly the potential to apply to many innocent arrangements.

‘While a number of exclusions are provided to try and ensure many pay and benefit arrangements are not caught, these are complex themselves, and are difficult to come within, so are unlikely to provide any relief in many cases.’

The issue highlights a clash between the Government’s desire to simplify the tax system and the complexities that can arise from its simultaneous objective to reduce avoidance.