Heads up on what's (not quite so) new - don't forget the rules on disguised remuneration

The rules on "disguised remuneration" were introduced with much fanfare back in 2011. In broadbrush terms they create a charge to employment income tax on the provision of benefits by third parties, and in particular by employee benefit trusts. Since the introduction of the rules, however, a certain complacency has crept in. Do not forget that the rules are a lot wider than just catching the classic channelling of benefits to employees through employee benefit trusts.

The key test is whether "…it is reasonable to suppose that, in essence – (i) the relevant arrangement, or (ii) the relevant arrangement so far as it covers or relates to [the employee], is (wholly or partly) a means of providing, or is otherwise concerned (wholly or partly) with the provision of, rewards or recognition or loans in connection with [the employee's] employment, or former or prospective, employment…" (section 554A (1) (c) Income Tax (Earnings and Pensions) Act 2003).

If you have any arrangement under which assets held by a third party are "earmarked", even informally, for employees, then there is a risk of the market value of those assets falling into immediate charge to income tax. To take one rather unexpected example, if a business owner leaves shares in his will to key employees, there is very little technical reason why this would not be seen as "wholly or partly" the provision of rewards or recognition in connection with the employment of those employees; in principle, as soon as the will is executed a "relevant step" has been taken under a "relevant arrangement" for the purposes of the disguised remuneration legislation and tax is due.

HMRC guidance suggests that they will apply an exception where the earmarking is in the "normal course of domestic, family or personal relationships", on the basis that the relevant arrangement is not, wholly or partly can, concerned with the provision of rewards or recognition to employees, but the question remains a grey area.

The practical advice is that if there is any arrangement under which a person other than the employer (or a group company) sets assets aside for the benefit of particular employees, then the disguised remuneration legislation needs to be looked at with care – get it wrong and the tax charge could come years before there is any benefit to the employee at all.