Disguised remuneration - note to software providers
20 July 2018
As part of the month 12/week 52 Full Payment Submission (FPS) for 2018/19 and the 2018/19 Earlier Year Update (EYU), employers will need to report the outstanding disguised remuneration loan amounts for their employees and ex-employees.
HMRC’s Software Developers Support Team (SDST) has provided the following update:
Background
Under disguised remuneration (DR) tax avoidance schemes, employers pay loans to employees in place of ordinary remuneration with the sole purpose of avoiding income tax and National Insurance contributions (NICs). The loans are usually paid via an offshore trust with no intention for them to be repaid.
Where the employer or employee has not settled the tax due under the schemes with HMRC, the charge on DR loans will arise. On 5 April 2019, the outstanding balance of DR loans will be treated as employment income and employers must declare the outstanding loan amounts via Real Time Information (RTI) and pay the income tax, NICs and Student Loans deductions due.
Summary
As part of the month 12/week 52 Full Payment Submission (FPS) for 2018/19 and the 2018/19 Earlier Year Update (EYU), employers will need to report the outstanding DR loan amounts for their employees and ex-employees. In a limited number of cases, the income may arise after 5 April 2019, and will need to be reported in a later tax year using the appropriate FPS. This will require one new data field on the FPS and EYU.
Process for employers
Employees and ex-employees must inform their employers of any outstanding DR loan amounts by 15 April 2019.
Employers should include the loan amount in the existing period and year to date fields along with any other payments made to employees in this period. Income tax, NICs and Student Loans deductions will then be calculated on this figure. Employers will then use a new field to identify the amount of outstanding DR loans included in the pay in period field. There will be no changes to the existing calculation and payment process for the employer’s PAYE liabilities.
Later tax years
There may be limited circumstances where the charge on DR loans will arise at a date later than the 5 April 2019. In these cases, employers will use the appropriate FPS within the tax year, rather than the final FPS for that tax year.
Next Steps
- Summer 2018: technical pack updates
- September/October 2018: available in TPVS and LTS test services
- Autumn 2018: further business process guidance
- March/April 2019: available in Live (Production) service
