The 2011 Budget confirms that draft Part 7A of the Income Tax (Earnings and Pensions) Act 2003 will be amended to exclude certain arrangements that are not used for avoidance purposes.

HM Revenue & Customs (HMRC) published draft legislation on 9 December 2010 (see Legal update, Draft anti-avoidance provisions to tax disguised remuneration (including EBT benefits and EFRBS) to tackle certain arrangements for providing benefits to employees using trusts (including employee benefit trusts) or other intermediaries in a way which sought to avoid or defer liabilities to income tax and NICs. Practitioners raised concerns that the draft legislation was very broadly drawn and could potentially catch many straightforward arrangements (including normal employee share plans) that had no tax avoidance purpose. In response to these concerns, HMRC published guidance on 21 February 2011 in the form of frequently asked questions (FAQs) (see Legal update, HMRC publishes FAQs on draft anti-avoidance legislation on disguised remuneration). The FAQs confirmed that HMRC intended to amend the legislation to create safe harbours for certain types of arrangement.

The 2011 Budget documents state that the draft legislation will be amended to add exclusions from the new rules for some arrangements that cannot be used for tax avoidance, including:

The revised draft legislation is not yet available, and HMRC notes that it will be published in the Finance Bill 2011 on 31 March 2011. The legislation is expected to apply from 6 April 2011 (although anti-forestalling provisions will apply retrospectively to certain transactions between 9 December 2010 and 5 April 2011).

Source: 2011 Budget - HMRC Overview of Tax Legislation and Rates, para 2.21: Disguised remuneration, page 16 and Tax Information and Impact Note.