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  • Background

    During our stroll around the Autumn Budget 2017 documents we have seen the good – the incentives being thrown at innovative knowledge intensive business; the bad – CGT changes to direct commercial property disposals for non-UK resident individuals and indirect disposals of all UK property; and now we have the ugly!

    I say ugly because over the years HMRC and the Government have spent a disproportionate amount of time dealing with both disguised employment and disguised remuneration than any other area.

    However, it seems that HMRC is starting to unmask these masters of disguise slowly and surely…


    Disguised employment

    Off payroll – private sector

    In some respects, there was good news today for those often referred to as ‘contractors’. It had been suspected that the Fiscal Phil might use the Budget to announce proposals to curtail the use of so-called ‘personal service’ companies in the private sector.

    Instead, in what is likely to be little more than a stay of execution, the Government announced that it will consult on the tax treatment of workers using such companies to provide their services to the private sector.

    So at least, for the time being, the asymmetry between the public and private sectors, and the consequences of which, will continue in the short term.

    I do not propose going through the advantages of providing services of an individual through a Company here. This is a well-trodden path.

    Although these arrangements perhaps are not purely about tax – and in many cases, it is the end user rather than the individual who reaps the greater reward – the Government has for some time been concerned about the advantage users of such companies receive. Of course, it is stated that they have an unfair advantage over employees.

    However, and I’ll be candid as we’re all consenting adults[1], I would suggest in reality it is the fact that the Government receives less in tax revenues that is probably the real issue.

    Way back when Disco 2000 by Pulp was briefly the present (sadly, I remember when it was the future) the Government introduced legislation which became known as “IR35”. Essentially, this legislation was introduced to counteract tax savings where individuals interposed a service company between themselves and the end user by treating payments as earnings from employment regardless. Purely and simply, it was designed to counteract such attempts to disguise one’s employment.

    Yes, for the best part of two decades legislation has existed to look through such artificial arrangements.

    If this is the case, then why is there still a problem?

    Well, first of all the legislation is absolute pants. Secondly, it has been extensively used by the civil service. This has meant that, even up to relatively recently, a paltry number of cases had been taken.

    At the beginning of this year, the state of play was dramatically altered for public sector workers who used service companies.

    Historically, the tax risk (and requirement to operate PAYE) was fairly and squarely placed on the service company. However, the changes shifted the risk to the public-sector end user who was engaging the service company. As such, it has to satisfy itself of the true status of the worker before it can make payments without operating PAYE.

    The view is that the public sector is, unsurprisingly, operating a cautious approach. If in doubt it will usually subject a payment to PAYE.

    I have mentioned this in other blogs, but this was always going to be the thin end of the wedge. A case of when, rather than if, this would be rolled out to the private sector.

    Secondly, anecdotal evidence is that contractors have been leaving the public sector in droves. A not wholly unexpected consequence one would hope.

    However, whilst the public sector, unsurprisingly, meekly accepted the changes, I suspect the consultation on any such proposals being rolled out to the private sector will be somewhat more spicy!

    That is not to say I believe any protestations will be successful.

    Employment status consultation

    Additionally, the Government has also separately set out that it will be publishing its response following on from the Taylor review. This report which looked at the various different types of working practices over the last year.

    The review is not just limited to tax and will cover broader employment issues including more satisfactory methods of determining a worker’s employment, or otherwise, status.

    Accordingly, in all probability it seems likely that within a year we will see proposals counteracting alternative structures to employment both for the higher and lower paid users of these arrangements.


    Disguised remuneration

    General – disguised remuneration

    This differs slightly from the above in that disguised remuneration schemes don’t (usually) seek to disguise the status of an individual but, instead, seek to disguise the bunce that he receives. Usually, arguing that cash received is a capital, and therefore not taxable as earned income, sum.

    There have been huge changes in this area over the last couple of years and most of those announcements have already been enacted. These provisions are a bit of a ‘sweeping up’ exercise. That said, due to the nature of the area, they are not without controversy.

    Disguised remuneration – The introduction of the Close Company Gateway

    This has been discussed at great length and the final legislation was published. It will bring in to the disguised remuneration rules certain schemes which benefitted those who were shareholders in trading companies who claimed that they benefitted from disguised remuneration arrangements for some other reason other than the fact they were employees. This brings in a new ‘gateway’ which will bring in those who have a material interest in a close company.

    OOTLAR states that this is effective from April 2017 however, this is wrong. This new gateway applies from April 2018.

    Interaction between disguised remuneration and other tax charges

    It seems that HMRC / the Government is seeking to ‘clarifythat a disguised remuneration charge under Part 7A of ITEPA can still arise even where the initial contribution should have been subject to PAYE.

    This is most strange and seems to represent serious back peddling post the surprising decision in the Rangers case. In other words, a charge to PAYE may have arisen on the contribution but a charge can also arise on the making of the loan as well?

    We await the technical note due to be published on 1 December 2017.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

    Duty to provide information regarding disguised remuneration loans

    HMRC have set out some of their objectives in respect of collecting their pernicious loan charge.

    Again, more details on 1 December 2017.

    Transfer of liability

    The poison cherry on the toxic cake of the loan charge was the proposition that HMRC would be able to transfer these pernicious retrospective PAYE liabilities from employers to employees. The document states that there will be technical amendments allowing this for offshore employers.

    However, we have to wait until 1 December 2017 for the full horror show.


    As I said in the introduction, this is very much the ugly end of the budget. It is clear that the Government wants those who are acting as employees to be clearly defined as such and to pay employment taxes on any income received carrying out such employment.

    In this regard, they are determined to remove these twin disguises once and for all!


    If you have any queries on disguised employment or disguised remuneration then please get in touch.

    [1] Yes, from time to time I like to pretend people are reading these blogs!