On 18 August 2011, HM Revenue & Customs (HMRC) published important draft guidance (guidance) on the disguised remuneration anti-avoidance legislation in Schedule 2 to Finance Act 2011 (Schedule 2). Much of Schedule 2 now forms a new Part 7A to the Income Tax (Earnings and Pensions) Act 2003 (Part 7A). Most of the legislation applies from 6 April 2011, but some anti-forestalling measures applied between 9 December 2010 and 5 April 2011 (inclusive).

The guidance will be finalised in autumn 2011 and published as part of HMRC's Employment Income Manual. It covers employment income tax issues, but does not cover National Insurance contributions (NICs) or related tax deductions for employers. NICs regulations are expected to be published soon, to align NICs liabilities with the PAYE treatment of Part 7A charges.

Companies using employee share schemes and their advisers will be particularly interested in any details included in the guidance about the award terms that HMRC will accept as capable of falling within broadly drafted statutory exclusions for share and other remuneration schemes.

Pensions practitioners should note in particular the paragraphs numbered TEMP82 to 89, which cover the exclusion from Part 7A of contributions to registered pension schemes and the circumstances in which contributions to employer-financed retirement benefit schemes are caught by the legislation.

HMRC expects to make only limited changes to the guidance before it is finalised and the guidance is not subject to formal consultation. However, urgent comments on the guidance can be sent to HMRC (by email to [email protected]). Comments should be received by 2 September 2011, in order to be considered before the first version of the final guidance is published.

For more information on Part 7A and Schedule 2, see Practice note, Disguised remuneration: Part 7A of the Income Tax (Earnings and Pensions) Act 2003 and Part 7A ITEPA 2003 tracker.

Source: HMRC: Finance Act 2011: Disguised remuneration legislation: draft guidance, 18 August 2011.