Posted on February 10, 2011 by recruitmentadvice

James Quarmby, a leading tax lawyer has slammed the tax mans plans to tax employees on income and benefits that have never been received.
James is tax Partner at Thomas Eggar LLP, said plans introduced in the draft Finance Bill in December 2010, were an “affront to the long cherished principles of our tax law”.
The new rules seek to make employers / employees pay tax on income in trusts etc which may never be drawn down. The legislation states that the tax charge will still arise even if the employee has no legal right to any money or other benefit from the employer.
The rules are trying to overcome the avoidance of employment income tax by employers and their employees channeling money through third party entities such as employee benefit trusts (EBTs) and employer financed retirement benefit schemes (EFRBS). But as usual – this is taking a sledge hammer to crack a nut.
At the moment it is the governments wish that wages do not rise steeply and that employers look at other ways to incentivise – at least that what they say – but these new rules will discourage the kind of long termism they purport to support.
Taxing employees on monies they have not and may never receive is patently unfair – especially since – as the employee has not yet had the money or benefits in the EBF, they will have to find the tax payment out of their income (most tax payments are deducted before receipt of net pay).
Despite mounting criticism the tax man is taking his usual stance (WGAF) and is pressing ahead anyway – another well thought out bit of red tape.
There are in all probability areas of abuse of EBT’s etc – but this legislation blankets all arrangements and is indeed a sledgehammer to crack a nut approach.
Some of the new rules have come into effect already, despite being only in draft form, and the rest of the provisions come into effect on April 6.