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New legislation meant to combat tax avoidance by high-earners has been criticised by the Chartered Institute of Taxation (CIOT) as over-complex, ‘penal’ and could add an additional layer of difficulty.
In an official response to Finance (No. 3) Bill's section on disguised remuneration – arrangements that involve third parties and defer or avoid income tax on rewards from employment or avoid restrictions on pensions tax relief – the CIOT complains that the latest rules are ‘very widely drafted’.
The professional body adds that the new exclusions are ‘intricate and heavily qualified’ and the first, which qualifies the exclusion of other group companies from being relevant third persons (relative to the employing company), ‘effectively introduces a general anti-avoidance rule for employment taxes in terms of many larger businesses’.
The updated disguised remuneration legislation runs to 59 pages and includes 14 separate avoidance tests governing when and how the new exclusions will apply.
The chairman of the CIOT’s employment taxes sub-committee, Colin Ben-Nathan, said, ‘We support the government in tackling tax avoidance involving rewards paid via third parties, but we think the legislation in the Finance Bill is far too complicated and risks creating problems as well as solving them.’
Mr Ben-Nathan warned that employers could ‘face real difficulties in trying to assess how they stand’ and will probably to need to take advice to arrive at a considered view.
‘Even then, that does not necessarily mean HMRC will agree with the view that has been taken, leaving employers open to potential uncertainty on whether or not tax charges arise and at what point.’
He added: ‘The new legislation is penal, and it overrides the longstanding rules under which benefits in kind are normally taxed.
‘Notwithstanding the new exclusions, we think it could still have an impact in mainstream situations involving some employee share plans, some pension schemes, joint ventures, private equity arrangements, smaller businesses, earn-outs and, notably, international businesses looking to locate employees in the UK.
‘Even if these problems were to be addressed the approach taken by the legislation risks creating new difficulties and loopholes,’ said Mr Ben-Nathan.
