A4/2019 Disguised remuneration schemes
Updated 10 July 2019
© Crown copyright 2019
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This publication is available at https://www.gov.uk/government/publications/housing-benefit-adjudication-circulars-2019/s42019-disguised-remuneration-schemes
Who should read
All Housing Benefit staff.
Action
For information.
Guidance Manual
The information in this circular does not affect the content of the HB Guidance Manual.
Queries
Extra copies of this circular and copies of previous circulars can be found on our Housing Benefit for local authorities: adjudication circulars page.
For technical content of this circular, contact:
[email protected]
For distribution of this circular, contact:
[email protected]
Introduction
1. This circular gives details about disguised remuneration (DR) schemes which have been identified by HM Revenue & Customs (HMRC) and what they are doing to recover unpaid Income Tax and (NICs).
2. No changes have been made to the Housing Benefit (HB) regulations but local authority (LA) staff need to be aware of the work being undertaken by HMRC as a very small number of benefit claimants may be affected. Further information can be found on the Tax avoidance: disguised remuneration page.
Background
3. DR schemes are tax avoidance devices where employees are paid using artificial loans paid via third parties in place of ordinary remuneration in order to avoid paying Income Tax and NICs. The loans are provided on terms that mean they are unlikely to be repaid, so they are no different to normal income and are taxable.
4. HMRC is introducing a one-off loan charge on 5 April 2019, when a number of taxpayers will be deemed to have been paid a taxable lump sum to reflect their usage of DR tax avoidance schemes in the past. This may be shown in earnings information from 6 March to 19 April 2019 as an amount ’paid’ in the final payroll of the tax year. However, this is an amount previously paid to the claimant by the employer and is not actual earnings, therefore only regular earnings shown on the payslip should be taken into account for the purposes of an HB award.
LA action to take
5. Any earnings information provided, for example, on a payslip or via the Verify Earnings and Pensions Alerts service which shows a DR lump sum should be ignored to ensure HMRC’s Loan Charge does not affect the claimant’s entitlement to HB.
6. HMRC has instructed employers to report any outstanding DR amounts through an Early Year Update (EYU). If the employer reports the Loan Charge using an EYU the amount will not appear on a payslip or via Verify Earnings and Pensions (VEP).
7. However, some employers may choose to report them through Payroll rather than through an EYU. If this is the case, the amount shown might not be split into regular earnings and DR charges, for example it could show the following:
Example 1: Payroll information
If an individual has a monthly wage from employment of £1,000 and had £10,000 in outstanding loans from that employer, when completing April 2019’s payroll, the employer may enter £11,000 as the individual’s taxable income for that month and calculate the Income Tax and NICs on the £11,000.
For the purpose of assessing the benefit award users should take into account the £1,000 payment only and Income Tax and NICs for that amount.
8. If the employer reports using Payroll rather than an EYU, then the amount could appear on payslips provided by the claimant or in the normal payroll run for March or April 2019 on VEP.
9. If there have been no special changes made to the payslip, then the DR amounts may be indistinguishable from the regular earnings amounts. If this is the case you should contact the employer for clarification or check previous payslips for the usual amount of regular earnings, Income Tax and NICs. These regular earnings should then be deducted from the amount shown on the payslip in order to identify the DR lump sum.
10. If there have been changes made to the payslip then the DR amount may show up as a separate amount from the regular earnings:
Example 2: Payslip which has been amended
Pay: £1,000.00
Loan charge / Disguised remuneration: £10,000.00
The Income Tax and NIC amounts may also have been split in a similar way.
11. If the claimant no longer works for the employer who used the DR loan scheme, then the employer is not required to report the Loan Charge.