Deferred bonuses not subject to new tax avoidance rules

HM Revenue and Customs (HMRC) has confirmed that legitimate deferred bonus schemes will not be subject to its new tax avoidance rules.

The Finance Bill, published in December, introduced legislation to tackle arrangements that use employee benefits trusts that seek to avoid, defer or reduce tax liabilities. The legislation will ensure an income charge arises where a third party makes a provision for a reward, recognition or loan in connection with an employee’s employment.This will include employer-financed retirement benefits scheme (Efrbs).

However, deferred arrangements, including those designed to meet the requirements of the Financial Services Authority’s (FSA) remuneration code, that are subject to a specified vesting date will not be affected.

A statement from HMRC read: “The policy intention is that the new rules should apply to arrangements involving a third party to reward employees and directors which seek to avoid, defer or reduce income tax and national insurance contributions (NICs) and also to arrangements that are used as a tax‐advantaged way to save for retirement, using Efrbs as an alternative to, or to top up, savings in a registered pension scheme.

“However, it is not the policy intention that the new rules should apply to deferred rewards which are subject to a specified vesting date and on which income tax under PAYE and NICs will be due, particularly where the reward is subject to meaningful and time‐specific conditions which there is a realistic chance will not be met.”

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