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Introduction

A few years after the establishment of the EFRBS regime (see the Employer-financed retirement benefit schemes (EFRBS) ― overview guidance note), HMRC saw instances of funded EFRBS being used for the purpose of providing loans to members and so avoiding tax. The Government saw such ‘creative use of EFRBS’ as not in keeping with its intention to create a ‘more affordable’ pension tax regime.

At the same time, HMRC was looking to tackle avoidance based on the use of employee benefit trusts (EBTs) as a means of delivering loans and other benefits for employees.

In a move to close off both of these potential avoidance routes, in 2011 the Government introduced ITEPA 2003, ss 554A-554Z21 (Pt 7A). Although this is entitled ‘employment income provided through third parties’, it is commonly referred to as the ‘disguised remuneration’ legislation. It aims to ensure that where a third party makes provision for, what is in substance, a reward or recognition or loan in connection with the employee’s employment, an income