Disguised remuneration and EBTs

HMRC has always sought to ensure that the rewards gained from employment are properly subject to income tax and National Insurance contributions (NICs) deducted by employers through the pay as you earn (PAYE) system. By contrast, employers have sought to use increasingly innovative ways to structure remuneration by using employee benefit trusts (EBTs) and other vehicles to avoid, defer or reduce income tax liabilities.

The disguised remuneration (DR) rules, found at Part 7A of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) (see Practice Note: Disguised remuneration—structure of the regime and its implications in practice) were published in draft on 9 December 2010. The rules cover the provision of loans and other forms of benefits by third parties, as well as certain arrangements which provide pension rights in excess of the annual and lifetime allowances applicable to registered pension schemes.

Those rules have been added to over time, with further measures introduced through Finance Act 2017, Finance (No 2) Act 2017, Finance Act 2018 and Finance Act 2020.

Although the rules contain a series of exclusions for certain

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