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Finance (No 2) Bill 2017

The new Finance Bill clauses have now been published, coming to – with the inclusion of much material held over from the previous Finance Act – some 674 pages. Much of the material is as expected from recent proposals and consultations. However, with a significant extension of the “disguised remuneration” regime, the introduction of a presumption of carelessness for users of defeated avoidance arrangements, and the new penalties for “enablers” of tax avoidance, it is to be hoped that there will be sufficient Parliament time to give proper scrutiny to the second-longest Finance Bill ever.

There are no direct amendments to the legislation relating to share plans. We have however attempted below to summarise key changes which relate to our practice area and set out their potential impact. If you think you may be affected by the changes, or would like further information, please feel free to contact us.

Corporation tax deductions – contributions to employee benefit trusts

The proposed legislation restricts the availability of a corporation tax deduction for contributions made to employee benefit trusts where the contribution is not paid out to employees on a taxable basis within five years.

For trusts used to satisfy employee share awards, this may make little difference as the company will be looking to claim a deduction under the specific statutory regime for employee share awards, not on the contribution to the trust itself. However, the new restrictions will be relevant where the trust is used to pay a cash bonus to employees. It is helpful that the time period for paying funds out on a taxable basis has been extended from the original proposals to five years as this reduces the likelihood that widely-used and legitimate arrangements will be caught, but companies which have made cash contributions to an EBT or ESOT should be aware of the five year deadline and look to make any payments before this is reached.

Disguised remuneration – outstanding loans

As expected, the tax charge on loans from third parties left outstanding in April 2019 is being reintroduced. This is clearly designed to catch the significant number of EBT-based arrangements where HMRC failed to raise an assessment in time to charge tax on either contributions to the trust or the making of loans, and will include any form of credit arrangement as well as simple loans.

This might well in substance be considered a retrospective tax charge. It will apply in most cases to historic arrangements established well before Part 7A ITEPA was enacted, and covers all loans made since 1999. Nonetheless, it is likely to be difficult to resist the legislation simply on this basis, and we would encourage anyone who has not yet settled with HMRC to consider either approaching them now or taking steps to provide for payment of the tax charge in 2019.

Disguised remuneration – the self-employed

The extension of the regime to self-employed trading income was proposed last year. In brief: arrangements involving payments to third parties, which benefit the trader concerned and which might reasonably be supposed to provide them with a tax advantage, will now attract an immediate charge to income tax.

It is not difficult to identify the sort of arrangements these provisions are intended to target – for example, the “contractor” schemes prevalent in some industries, where payments for a contractor’s services are directed to an offshore trust from which the contractor receives loans. However, the legislation is broadly drafted, and we would encourage anyone who may be affected by it to take further advice. There are also equivalent provisions to those being introduced for employees, where tax will be charged on the amount of any loan still outstanding from a third party in April 2019 in connection with such arrangements, even if the loan was made up to twenty years previously.


There are a number of new anti-avoidance measures being introduced beyond the disguised remuneration measures referred to above. The key provisions include:

– A presumption of carelessness where taxpayers submit a return on the basis that avoidance arrangements were effective without taking genuinely independent personal advice.

– Penalties for enablers of defeated tax avoidance schemes. These provisions are intended to apply only to “abusive” arrangements, using the test set out in the GAAR – i.e. arrangements which could not reasonably be regarded as a reasonable course of action. It is however worth noting in particular that they will apply a) to third parties who enter into transactions as part of the arrangements, if they could reasonably be expected to know that the transaction formed part of an “abusive” arrangement – for example, trustees; and b) to advisers who either propose arrangements or suggest alterations to them.

It is explicit that advice is not to be taken to “suggest” anything it puts forward but “can reasonably be read as recommending against”, but it is easy to see room for ambiguity if e.g. an adviser highlighted significant risks without specifically recommending against a course of action, or if a client went ahead against advice but subsequently asked for advice on a separate point of implementation. As the presumption of carelessness referred to above clearly encourages taxpayers towards taking independent advice, it is easy to see how this might correspondingly influence independent advisers to recommend against tax arrangements which carry any risk of being treated as “abusive” for fear of penalties – which is presumably the intended outcome.

– New “offshore tax non-compliance” penalties where a taxpayer has failed to make a return, or otherwise disclose information to HMRC, relating to offshore assets or a transfer offshore. The penalties here can be up to 200% of the potential lost revenue and it is worth noting that the taxes to which this applies include inheritance tax as well as capital gains and income tax. Taxpayers have until September 2018 to “correct” the non-compliance. It is easy to see a number of circumstances in which this could apply to offshore EBTs on points where there is genuine disagreement between the taxpayer and HMRC as to the correct interpretation of the law. We would therefore encourage anyone who may be impacted by this to seek further advice with a view to making a disclosure to HMRC (if full details have not been disclosed already).