Glossary · UK
What is Disguised Remuneration?
Arrangements -- such as EBT loans -- used to pay employees or contractors in ways that avoided Income Tax and NI, now subject to the 2019 loan charge.
Full Definition
Disguised remuneration refers to arrangements designed to reward employees or contractors in ways intended to avoid Income Tax and National Insurance contributions. The most common form involved employer-funded Employee Benefit Trusts (EBTs) or contractor loan schemes, where remuneration was paid as an ostensibly repayable loan from a trust rather than as salary. Because loans are not technically income, no PAYE or NI was deducted. HMRC challenged these arrangements for many years as tax avoidance. From 6 April 2011, Part 7A ITEPA 2003 introduced comprehensive anti-avoidance rules charging Income Tax and NI on any "relevant step" taken under a disguised remuneration arrangement -- for example, when a loan is made, assets are transferred, or a debt is released. The 2019 Loan Charge was a further measure that applied a single tax charge (at the taxpayer's marginal rate) on outstanding EBT loans made between 6 April 1999 and 5 April 2019 that had not been repaid or settled, with the loan amount treated as earnings in 2018/19. After significant controversy and the Morse Review (2019), the start date was revised to 9 December 2010 and some protections were introduced. HMRC continues to pursue open enquiries into disguised remuneration schemes, and new promoters of similar arrangements are targeted under the DOTAS and POTAS regimes.