Fri, 24 Dec 2010

Concern raised on tax avoidance clampdown

Concern has arisen that legitimate reward schemes could fall foul of new measures to clamp down on tax avoidance in employee remuneration.

The Government last month confirmed it will introduce legislation to tackle arrangements that involve trusts or other vehicles used to reward employees in ‘disguised remuneration,’ where it results in avoidance or deferment of income tax or National Insurance Contributions (NICs).

Carol Dempsey, tax and reward partner at accountancy giant PricewaterhouseCoopers, said: ‘Although targeted at “disguised remuneration” there is a concern that the draft arrangements could accidentally catch trusts that are used to support employee share plans and normal deferred bonus plans.

‘From the statement it is not clear what the scope of the changes will be, but companies who use employee benefit trusts should start assessing them as soon as possible as a significant clampdown seems likely.’

She said there is an ‘urgent’ need for clarity. The measures are due to come into force in April, with anti-forestalling measures in place since 9 December, when the plan was confirmed in an HMRC statement.

Plans to claw back bankers’ pay in the event of poor corporate performance (see News in Brief, page 7) could see individuals taxed for income that is returned, Ms Dempsey said. She continued, ‘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.

Employees could end up paying 52% tax and NIC before a bonus is paid, even if it is eventually never paid.’

With public spending cuts, public opinion has hardened against tax minimisation strategies. Last month demonstrators forced the closure of the flagship London store of Topshop, protesting at alleged tax avoidance by retail proprietor Sir Philip Green.