Employee benefit trusts and employment finance retirement benefits schemes are the latest to be targeted in proposed Treasury regulations.
The Finance Bill 2011 contains a document concerning ‘disguised remuneration’ which aims to tackle the practice of using trusts and other means to defer, reduce or avoid tax liabilities. As from April 2011, these benefits will attract income tax and NICs.
Standard Life says that new anti-forestalling rules, which came into effect on December 9th, will stop employers making any new payments to these schemes. John Lawson, the head of pensions policy at Standard Life, said that people who already have funds in EBTs or EFRBS could be subject to admin charges of more than £5,000 which will diminish the value of their fund.
High earners had been using EFRB schemes as an additional way to fund their retirement since pension contributions were capped. If these contributions were seen to be genuine and constituted a salary sacrifice from the employee, they did not attract PAYE deductions. The new legislation will bring these schemes into line with government approved pension schemes.
As from the start of the new tax year, any third party provision, such as a reward or loan, made to an employee in connection with their employment, will be taxable.
HMRC expects to receive an additional £500 million a year as a result of the new legislation. It is as yet unclear whether these new rules might be applied retrospectively and Treasury clarification is expected over the coming weeks.
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