What is the disguised remuneration legislation?
Answered 17 March 2026
What the law says
The disguised remuneration legislation is found in Part 7A of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003), which concerns income provided to employees through third parties. It was introduced by Schedule 2 to the Finance Act 2011 and has been subsequently amended.
The legislation operates by reference to a "relevant step" — an action taken by a relevant third person which gives rise to Part 7A income by reason of the employee's employment. The value of the relevant step is the amount that counts as employment income.
Broadly, if third-party arrangements are used to provide what is in substance a reward, recognition, or loan in connection with an employee's current, former, or future employment, an Income Tax charge arises. The legislation also covers non-registered pension schemes.
The legislation contains detailed exclusions targeted at arrangements that are not tax avoidance arrangements.
A specific extension — the loan charge — was introduced by Schedule 11 to the Finance (No.2) Act 2017, applying Part 7A to loans and quasi-loans outstanding on 5 April 2019. Taxpayers could elect for the loan charge to be split equally over three tax years.
HMRC guidance / practice
HMRC describes the disguised remuneration legislation as "wide ranging anti-avoidance legislation" introduced to tackle arrangements involving third parties which seek to avoid or defer the payment of Income Tax on employment income.
The key parties in the legislation are referred to as:
- A – the employee (current, former, or prospective)
- B – the employer (current, former, or prospective)
- P – the person taking the relevant step (the "relevant third person")
Common vehicles used in such arrangements include employee benefit trusts (EBTs) and employer-financed retirement benefits schemes (EFRBS).
HMRC describes disguised remuneration as "a type of tax avoidance" involving "people being paid for work or services in the form of a loan that is unlikely ever to be repaid".
Where a relevant step counts as employment income, the employer may be entitled to a deduction under the EBT legislation, but only to the extent the charge arises from an underlying contribution by that employer. Where the charge exceeds the original contribution (e.g. because an EBT has received investment income), the deduction is limited to the original contribution.
The employer is required to operate PAYE on the amount counting as employment income, unless the person who took the relevant step does so instead.
Detailed HMRC guidance is published in the Employment Income Manual from EIM45000 onwards.
Citation sources
PART 1 Direct taxes Disguised remuneration Employment income provided through third parties 34 1 In section 554XA of ITEPA 2003 (employment income provided through third parties: exclusion for payments in respect of a tax liability), in subsection (2), omit paragraphs (a) and (b). 2 The amendment made by subsection (1) has effect in relation to relevant steps taken on or after 21 July 2017. 3 Schedule 11 makes provision about the application of Part 7A of ITEPA 2003 in relation to loans and quas
Part7A ITEPA 2003, concerning income provided to employees through third parties (also referred to as the ‘disguised remuneration legislation’), was introduced to tackle arrangements involving third parties which seek to avoid or defer the payment of Income Tax on employment income. It is wide ranging anti-avoidance legislation. Guidance on the disguised remuneration legislation generally is at EIM45000 onwards.
morandum (HLM)pursuant to which LSC Finance Limited (LCS), an entity established in the BVI, as lender, hypothecated “all such sums as may be claimed by HMRC … as falling subject to the provisions of [the loan charge], in respect of [the Appellant]”. The Appellant borrowed £2,946,000 pursuant to the agreement, apparently for repayment of sums originally loaned by OSLRT (the trustee for which was Griffin Trustees Limited (Griffin)). 10. At or about the same date £2,946,000 was paid by LCS at the
Broadly, an amount treated as the employee’s employment income arising under the disguised remuneration legislation attracts a deduction for the employer under the employee benefit trusts (EBT) legislation to the extent that the income arising occurs in respect of an underlying contribution to an EBT (or other arrangement) paid by that employer. For further details, see BIM44636. Note that due to the nature of the legislation, not all charges arising under the disguised remuneration rules result
Amount on which PAYE must be operated Example 1: remittance basis applies to full amount of relevant step Example 2: remittance basis applies to part of relevant step Example 3: best estimate Date of the deemed payment of PAYE income Employee failing to make good the PAYE Under Part 7A ITEPA 2003 (employment income provided through third parties), an amount counting as employment income arises in respect of A’s employment with B if the statutory conditions are met and, in particular, a ‘relevant
This section provides an overview of the legislation that applies from 6 April 2011 when new legislation was introduced at Part 7A ITEPA 2003. See the Employment Income Manual (EIM45000+) for detailed guidance on the treatment of employment income provided by third parties - sometimes referred to as ‘disguised remuneration’. The tax legislation on employment income provided through third parties tackles arrangements which: involve third parties (including trusts or other vehicles used to reward
PART 1 Income tax, corporation tax and capital gains tax Loan charge Election for loan charge to be split over three tax years 16 1 Schedule 11 to F(No.2)A 2017 (employment income provided through third parties: loans etc outstanding on 5 April 2019) is amended as follows. 2 In paragraph 1 (person to be treated as taking a relevant step for the purposes of Part 7A of ITEPA 2003 by reason of making loan or quasi-loan)— a after sub-paragraph (6) insert— 6A Sub-paragraph (4) is subject to paragraph