TOUGH NEW TAX avoidance rules on incentive awards paid out to bankers will not apply to genuine deferred bonuses, HM Revenue & Customs has clarified.
The Treasury had been targeting “employee benefit trusts” offshore vehicles. These allowed some bankers to loan an amount equivalent to their bonuses, which meant they would only pay tax on the interest accrued. “Disguised remuneration” legislation was introduced in December to shut these trusts down.
HMRC said yesterday that, as it stands, this legislation will bring forward an income tax charge in genuine deferred remuneration arrangements. The genuine arrangements could include those made to meet Financial Services Authority requirements, as part of good business practice or for reasons associated with corporate governance.
However, HMRC announced that it was changing the drafting so that the rules only apply to “arrangements involving a third party to reward employees and directors which seek to avoid, defer or reduce income tax”.
It said that arrangements will not be subject to income tax charge being brought forward if they: are subject to conditions that must be fulfilled for the employee to receive the benefit; have a specific “vesting” date when the employee receives the award; and do not have the primary purpose of deferring tax.
Nicholas Stretch of law firm CMS Cameron McKenna. told the Financial Times: “These arrangements have not been the basis for tax deferral and so should not have been caught in the first place, but there was a genuine fear that the legislation did catch them and also that the deferral sought by the FSA’s remuneration code would have been undermined by these new tax rules.”
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