Disguised Remuneration Schemes are currently the subject of a major HMRC crackdown. They are a form of tax avoidance schemes, or unlawful strategies that exist to attempt to avoid the correct payment of tax and generate illegal financial gain.
These schemes use the basic format of a legitimate Employee Benefit Scheme, but include a few fundamental differences. Specifically, the financial rewards for directors and employees are payment arrangements that are awarded as disguised remuneration “loans” and not as direct payments that are subject to tax liability. 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 charge 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 outstanding loan charges, and this will involve a disguised remuneration calculation which can be quite complex to complete in full.