Anti avoidance - taxation of earnings
The Government has announced the introduction of anti-avoidance legislation designed to counteract attempts to avoid income tax and national insurance contributions via the use of employee benefit trusts, other trusts or intermediaries. In addition, the intention is to include arrangements that seek to avoid the restrictions on pensions tax relief.
This can be seen as an extension of an earlier announcement through an HMRC 'Spotlight' article which focused on planning through employee benefit trusts, seeking to impose tax charges when funds are allocated under such trusts rather than when distributed.
In addition, as part of the overall tightening on planning relating to employment income tax, anti-avoidance measures have been announced relating to:
- The use of HMRC-approved company share option plans where awards are made over shares in subsidiaries of listed companies;
- HMRC-approved share incentive plans where shares are bought from shareholders to generate corporate tax relief but without the shares being delivered to employees;
- Making awards in geared growth interests. Currently, these potentially offer capital gains tax rates for gains made. The intent of the consultation will be to ensure that amounts which should be taxed as employment income are brought within the charge to income tax and national insurance contributions.
Who will be affected?
The reach of this proposed anti avoidance legislation has yet to be defined.
Any changes will not be introduced before 6 April 2011.
Although the Chancellor has announced his intention to consult, review and take action to counter avoidance, it remains to be seen what form these changes will take and how extensive they will be. This will be an important area to keep under review.