As set out in the Coalition Agreement, the Government are committed to tackling tax avoidance and the Chancellor announced a number of anti-avoidance measures which may impact how employers remunerate their employees.

In light of the increase in the marginal income tax rate to 50%, the proposed increase in NIC and the changes to tax relief on pension savings, many employers were looking to remunerate employees in ways other than cash earnings. This included:

• Share plans (such as growth shares and joint share ownership) and carried interest arrangements all of which were designed to ensure that the growth in value was subject to capital gains tax rather than income tax and NIC
• Using employee benefit trusts to defer or reduce income tax and NIC liabilities
• Using unregistered pension schemes such as EFURBS to avoid restrictions on pensions tax relief

The previous Government announced that they were going to review the tax treatment of such arrangements and in relation to employee benefit trusts and unregistered pension plans that they would consider legislating against such arrangements.

The Chancellor has reaffirmed the previous Government’s commitment to consult on the tax treatment of growth shares/joint share ownership plans/carried interest but with the intention of ensuring that employment income is taxed under the income tax and NIC regime. The Chancellor has also confirmed that legislation will be introduced with effect from April 2011 to deal with employee benefit trusts and EFURBS.

It seems that the Government is committed to taking a more strategic approach to avoidance schemes to try to prevent the need for increasingly complex and frequently changing legislation. Ultimately this may result in the introduction (as in some other countries) of a general anti-avoidance rule ('GAR').

Our view
We welcome any attempts to simplify the tax legislation, although a GAR would not necessarily achieve this. The crackdown on the more exotic remuneration planning schemes means that HMRC approved and qualifying employee share plans and standard restricted share plans are more attractive than ever for high earners since they enable any growth in value to be taxed as capital gain rather than employment earnings.

For more information on these issues please contact

Victoria Goode or Sara Cohen

or your usual Lewis Silkin contact