Disguised Remuneration Schemes are currently the subject of a major HMRC crackdown. They are unlawful strategies that exist to attempt to avoid the correct payment of tax and generate unlawful financial gain. These schemes use the basic format of a legitimate Employee Benefit Scheme, but include a few fundamental differences. Specifically, the financial rewards that are paid out to directors and employees are awarded as “loans” and not as direct payments that are subject to taxation. Genuine loans are intended to be repaid and so they are not liable to be taxed.
In the case of a Disguised Remuneration Scheme, however, the amount of the “loan” is not intended to be repaid and the employee receives the full amount with no apparent requirement to pay tax on it. This amounts to tax avoidance or in some cases, tax evasion, and employers and users are liable to pay the tax avoided with interest and in some cases, tax penalties. HMRC have offered a settlement opportunity to avoid the charge on loans and this will involve a disguised remuneration calculation which can be quite complex to complete in full.