New avoidance law "a monster headache" for employers

THE “OVERLY COMPLEX” rules regarding the tax avoidance schemes for employees detailed in the Finance Bill will cause problems for employers and leaves questions unanswered, tax advisers have warned.

The disguised remuneration legislation, which the government predicts will generate £750m a year, will come into force from 6 April. The policy is designed to prevent tax avoidance through the use of Employee Benefit Trusts (EBTs), trust funds that provided non-repayable tax free loans, and the unapproved Employer Funded Retirement Benefit Scheme (EFRBS) pension schemes.

However, the 25-page original draft had unintended consequences as it affected deferral schemes put together for genuine commercial reasons. HM Revenue & Customs issued a frequently asked questions factsheet that outlined the scope of the legislation.

The schedule in the Finance Bill, which is intended to incorporate the concerns and the FAQs, is 59 pages long compared with the 25 pages in the first draft.

Mark Groom, associate partner at Deloitte, said the government “has created a monster”.

“It is difficult reading. The biggest concern from an employer’s point of view is about how to understand and comply with it – and the cost of compliance.

“It will achieve what HMRC wants to achieve. But what else does it do? That is the headache. A lot of businesses have bona fide commercial arrangements that have no tax avoidance. Employers must know what they can and can’t do and that could be costly.”

HMRC “deserves credit” for issuing the FAQs and for consulting widely, he added. But there are areas, such as salary sacrifice, in which HMRC “has not come off the fence”, he said.

Jayne Vaughan, head of employment tax at KPMG, said that although there was clarity on some points, there was more confusion on others.

“The worrying thing is that this comes out on 6 April, which leaves employers with very little time to get their heads round it. HMRC will be inundated with many queries on this,” she said.

Alastair Kendrick, director of employment tax services at Mazars, said the success of the legislation will not become apparent until a court rules on something that HMRC considers to be tax avoidance.

“I think it still needs amendments,” he added. “It will be quite interesting to see if there are some things that do not get taken out due to errors in drafting. Time will tell.”

Philip Davis, employment tax partner at Ernst & Young, said: “[This is] an overly complex and lengthy piece of legislation – having grown from 25 to 59 pages – which still has the potential to capture many unintended situations, which do not fall precisely within the circumstances identified in one of the 19 exclusions.

“It is hard to see how this aligns with the government’s tax policy principles which require simplicity and predictability.”