By Claire West
The Chartered Institute of Taxation (CIOT) is calling on the Government to reconsider their approach to tackling attempts to avoid tax through 'disguised remuneration'.
The Budget confirmed the Government's intention to introduce legislation to target arrangements involving third parties and which are aimed at deferring or avoiding income tax on rewards from employment or avoiding restrictions on pensions tax relief.
Colin Ben-Nathan, Chairman of the CIOT's Employment Taxes Sub-Committee, said:
"We are disappointed that the Government has not heeded calls to reconsider the approach adopted. As things stand the proposals remain a very blunt instrument and even though changes are promised we fear they are still very likely to impact employers and employees in ways that are not intended. We urge further reflection before the final legislation is introduced.
"The proposals are moving to taxing the form (involvement of a third party) rather than the substance (reward or loan in connection with the employment) of the arrangement. There are many hard edges which will mean that the legislation will have to be read very carefully to determine whether, in all likelihood inadvertently, the new PAYE/NICs triggers have been activated.
"Ploughing through detailed legislation is inevitably going to take a lot of time and effort for agents, employers and HMRC alike, particularly for the large number of smaller, owner-managed or family businesses with relatively few other employees. Indeed, we foresee that many employers will need to approach HMRC to determine whether or not their current arrangements are affected.
"We welcome the intention of excluding, where possible, third party arrangements that do not constitute tax avoidance, e.g. arrangements involving group companies. However, we remain concerned that if discretion is left to HMRC to decide what arrangements are the right side of the line and which are not then the position will always be uncertain and subject to a change of HMRC view. In effect employers and employees will be "taxed by law, untaxed by concession" and we do not think this is the right basis on which to frame tax law for UK plc.
"As things stand, we can foresee the Finance Bill clauses being the subject of significant debate and amendment.