The Budget introduces a new income tax charge on third party arrangements used by employers to provide a reward to employees.
This will capture any reward, recognition or loan provided by an employer to an employee in connection with their employment.
The income tax charge will be based on the full value of the benefit provided as a monetary benefit or assets used.
Some items will be excluded from this new measure where they are third-party arrangements which are not tax avoidance.
However, the new income tax charge will apply to third-party intermediary arrangements which are used as well of or instead of registered pension schemes.
These arrangements are often used to provide pension benefits over the value of the annual or lifetime allowance for registered pension schemes.
This means that the new legislation, as previously announced in the June 2010 Budget, will cover Employer Financed Retirement Benefit Schemes (EFRBS).
An EFRBS (also sometimes called an EFURBS) is simply a unapproved pension scheme. This means it does not benefit from the same tax benefits as an approved registered pension scheme.
This announcement was not entirely new and anti-forestalling measures have applied since 9th December 2010.
The new disguised remuneration rules will mean that money paid into EFRBS will result in the employer having to account for this through the PAYE system. New legislation will be introduced in due course which will see National Insurance contributions also applied to these payments.
The use of unapproved Employer Financed Retirement Benefit Schemes is a complex subject, so we would usually work in conjunction with a suitably qualified and experienced Chartered Accountant when providing investment advice in this area.
Do speak to us if you have any questions about the impact on your own Employer Financed Retirement Benefit Schemes.
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