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‘Cash bonus planning’: Draft regulations published


Avoidance of tax and national insurance contributions by means of employment-related securities continues to be “rife”, the Inland Revenue has said.

The avoidance disclosure rules introduced in Finance Act 2004 have revealed “ever more complex and contrived” schemes, which the Revenue considers to be part of a “systematic attack” on the rules that tax employment-related securities by “those intent on cash bonus planning”.

The Revenue added: “New legislation will stop them with effect from 2 December 2004”.

A technical note was published with the Pre-Budget Report explaining how the tax legislation would be changed.

The Revenue has now published the draft legislation, together with explanatory notes, and has invited comments on the detail of the draft clauses.

The Revenue provided the following additional information:

“1. Part 7 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA), provides the income tax rules in cases where securities, interests in securities or securities options are acquired in connection with employment to ensure that all of the value received by way of remuneration in the form of shares or other securities is taxed at the time it is accessed by the employee.

2. Avoidance schemes that sought to side step these rules will be stopped with effect from 2 December 2004. Employers were using these schemes to avoid paying the proper amount of income tax and National Insurance contributions, particularly in relation to large bonuses in the financial sector.

3. The draft legislation published today extends the definition of securities to include certain insurance contracts; tightens the rules relating to securities that have restrictions or rights of conversion placed on them; and expands the provisions relating to benefits from employment-related securities.

4. Draft legislation and explanatory notes are published on the Inland Revenue [website].

5. Comments on the draft legislation should be sent to: Dominic Burke, Inland Revenue, Room G49, 1 Parliament Street, London SW1A 2BQ.”

Andrew Goodall

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Annie Hayes


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