Pictured above: Andrew Shaw

The Government has effectively brought in a General Anti-Avoidance Rule for employment income via the back door, an expert has warned.

Andrew Shaw, national managing partner of Birmingham-based BTG Tax, was commenting on moves to clamp down on avenues that bosses of family firms have been using to ensure they pay less tax.

It concerns the treatment of so-called disguised remuneration - payments to and from Employer Financed Retirement Benefit Schemes (EFRBs).

The new rules come into effect from April 6 next year, but transitional regulations have been put in place to prevent people exploiting the existing legislation between now and then.

Mr Shaw said: "The proposed legislation is neither retrospective nor retroactive since, if you already have an EFRB and it has made loans to directors or employees, then these loans will not be caught. 

"But it is too soon to reach for the Champagne to celebrate slipping through the loophole before the door was closed."

For, he noted, two recent court decisions had already more or less done the job for the Government.

"In both these cases the company made payments out to forms of Employee Benefit Trusts (EBTs) and as a consequence of such transactions employees/directors ended up with control of money that had previously belonged to the company," said Mr Shaw.

"The judges ruled that notwithstanding the legal position the employees had 'de facto' enjoyment of monies previously belonging to the company and, therefore, the court would ignore all the intervening steps and simply treat the payment as being remuneration.

"It seems, therefore, that, in many cases, HM Revenue & Customs do not need the new legislation to attack old schemes - they will be able to do so on the basis of these two tax cases alone.

"The very wide drafting of the new legislation simply follows the judges' rationale. Where you insert one or more steps of whatever nature, at whatever time scale and whether preordained or not, you simply go back and treat the payment from the company as being subject to PAYE and NIC. The nature of the drafting almost makes it a General Anti-Avoidance Rule for employment income."

Time to take some independent advice, suggests Mr Shaw.

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