Relief as HM Revenue and Customs clarifies tax rules for deferred bonuses

Employers are relieved after HM Revenue and Customs confirmed legitimate deferred bonus schemes will not be hit by new tax avoidance rules.

The Finance Bill, published in December, introduced legislation to tackle the use of employee benefits trusts (EBTs) 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 a person’s employment. This also includes employer-financed retirement benefits schemes (Efrbs). But the rules were unclear as to whether they would also affect legitimate arrangements for shares and bonuses to be awarded to employees.

Last month, HMRC said legitimate deferred arrangements using EBTs, including those designed to meet the requirements of the Financial Services Authority’s remuneration code, that are subject to a specified vesting date, are not affected.

Jeremy Mindell, senior reward and tax manager at Henderson Global Investors, said: “If an employer is deferring [reward] because it wants to ensure someone’s performance is consistent and isn’t taking unreasonable risks, that was the sort of element it was concerned would have an immediate tax charge. How would people pay that tax charge if they have not got shares released to them? HMRC has been helpful in reducing that concern. It gives the all-clear to go ahead with deferral plans.”

But Ann Govier, manager of senior remuneration and employee share schemes at Marks and Spencer, said some employers could still be caught out. “One of the conditions of a trust is that if [employers] hedge shares in a trust and buy them before they are required but hedge them specifically for individuals, it could still be subject to taxation.”

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