Disguised Remuneration (DR) is a type of contrived tax avoidance where loans are paid, usually via an offshore trust, in place of ordinary remuneration with the sole purpose of avoiding income tax and National Insurance contributions. The loans are provided on terms that mean they are unlikely to be repaid. They are no different to normal income and are and always have been taxable.
Since their first use, HM Revenue and Customs (HMRC) have opened tens of thousands of enquiries into DR schemes used by both companies and individuals, warned about use of these schemes in a number of Spotlight publications, successfully litigated cases through the courts and agreed settlements to help taxpayers exit tax avoidance.
The Government introduced targeted anti-avoidance legislation in 2011 to put beyond doubt the ineffectiveness of DR schemes. The Loan Charge was announced at Budget 2016 as part of a package of measures to tackle the use of DR schemes and gave taxpayers the choice of either repaying their loan in full, agreeing settlement terms with HMRC, or paying the Loan Charge.
The Government will continue to tackle this type of tax avoidance vigorously and on 19 March 2020, HMRC published their strategy for tackling promoters of mass-marketed tax avoidance schemes. This strategy outlines HMRC and Government ambitions to drive promoters of tax avoidance out of business.