UK: Disguised Remuneration Update- Revised FAQs Published by HMRC
HM Revenue and Customs (HMRC) published a third version of frequently asked questions (“FAQs”) on 5 July 2011, relating to the U.K. draft legislation published under the title “Employment income provided through third parties” and commonly referred to as “Disguised Remuneration.”
In a previous article, we explained that the draft legislation in its original form, published on 9 December 2010, had caused widespread concern because of the legislation’s wide scope and the resulting unintended consequences. In response to these concerns, HMRC published the first version of FAQs on 21 February 2011 and a second version of FAQs on 31 March 2011. These were published to address the issues that had been raised by KPMG LLP (U.K.) and other interested parties following the publication of the legislation. Version 3 replaces version 2 which was published on 31 March 2011.
Amended legislation was also published as part of the Finance Bill 2011 and many of the amendments made and answers to the FAQs were welcome revisions. However, the revised legislation remained complex and further questions were raised as to its scope and effect. The situation continues to be complicated by the fact that the Finance Bill 2011, when enacted, will take effect retrospectively from 6 April 2011.
For version 3 of the FAQs, see: http://www.hmrc.gov.uk/budget-updates/march2011/drl-faq.pdf .
FAQs – Highlights
The key revisions to the FAQs are in respect of the following:
• Further clarification on deferred remuneration arrangements (FAQs 17 to 21) and employee share schemes (FAQs 22 to 32); although this addresses only some of the comments and concerns previously raised, problems may still arise where share plans or deferred bonus plans are operated in conjunction with Employee Benefit Trusts.
• The pensions section now includes comments on chapter 3 of the legislation and further commentary.
Pensions and Draft Secondary Legislation
HMRC also published draft secondary regulations for comment by 30 September 2011, on specific exclusions from the Disguised Remuneration legislation applicable to certain pension arrangements. These regulations have been again published in response to questions submitted to HMRC regarding the application of the legislation to certain pension schemes and, in particular, “relevant non-U.K. schemes.”
For the draft secondary regulations, see: http://www.hmrc.gov.uk/pensionschemes/dis-rem-draft-reg.htm.
The draft regulations provide for specific exclusions from Part 7A of the Disguised Remuneration legislation in respect of certain relevant steps, and specifically in respect of:
• relevant steps arising/deriving from contributions to a relevant non-U.K. scheme that received U.K. tax relief;
• transfers from registered pension scheme to qualifying registered overseas pensions scheme; and
• payments by a pension scheme that has been subject to an unauthorized payment charge.
KPMG Note
KPMG LLP (U.K.) welcomes the further clarification the FAQs bring and will be commenting on the draft regulations.
The Finance Bill is due to receive Royal Assent in July 2011, and once enacted, will apply retrospectively from 6 April 2011. It is important that employers are aware of the changes and review their current systems and processes to establish that they are prepared to deal with their compliance obligations under this new legislation.
Source: KPMG