If you provide, or advise on the provision of, employee-related benefits (for example, cash loans, share incentives or pensions) and a third party is involved in the arrangements, you need to read on so that you are aware of important recent developments.

The Government’s efforts to protect public revenues and to counter tax avoidance have recently resulted in some complex legislation in the area of remuneration and pensions, which will have wide-ranging effects.
 
Provisions to prevent tax avoidance where benefits are provided (through trust or other third parties)
Finance Act 2011 includes anti-avoidance legislation to prevent the perceived use of third party arrangements, typically employee benefit trusts (EBT), employer-financed retirement benefit schemes (EFRBS) and similar arrangements, to benefit employees or their families in a way that avoids or defers liabilities for income tax and National Insurance contributions (NIC). The legislation itself can be found in the new Part 7A to the Income Tax (Earnings and Pensions) Act 2003.
 
Remuneration and benefit arrangements may need altering
Employers and advisers will have to be alert to these provisions and may need to alter remuneration and benefit arrangements (and in some cases transaction or investment structures) to prevent unnecessary and unexpected PAYE and NICs liabilities arising as a result of it. If there is no third party involved in the arrangements, the provisions won’t bite. Thus, for example, employee share plans that make use of newly-issued shares or treasury shares will not be affected. Similarly, from a pensions perspective, funded (or secured) unapproved retirement benefit schemes will be affected, but similar unfunded, unsecured promises will not be.
 
Allowing an individual use of any asset (not just money) will often create a tax charge
Broadly, the new rules impose a charge to income tax and NIC under PAYE when a third party takes a "relevant step" in relation to arrangements for "rewards, recognition or loans" to be provided to prospective, current or former employees (or directors). A relevant step is broadly defined and can occur when a relevant third person "earmarks" a sum of money or asset "however informally", with a view to taking another relevant step in the future. There is no definition of “earmark” and its interpretation has given rise to much speculation.
 
Example
A founding shareholder of a family company promises to give a senior manager some of his shares when he retires. This could be treated as “earmarking” the shares for the benefit of an identified employee and could therefore now trigger an immediate tax charge.
 
Rather than specifying particular targets for the new charges to tax, the new rules have been drafted very widely, but with a large number of narrowly-drawn exemptions. Some of these exemptions relate, understandably, to tax-approved arrangements, such as approved share schemes, enterprise management incentives (EMI) and registered pension schemes. Others, however, are aimed at unapproved, but normal commercial, arrangements which Parliament has decided are not to be regarded as giving rise to unacceptable avoidance.
 
Some arrangements are treated harshly, and deliberately so. An example of widely-drafted charging provisions with narrowly-drafted exemptions is treatment of loans, which were considered to be a particular area of abuse. The full value of any loan (not just the “benefit in kind” element) made by a relevant third person will now be subject to income tax and NICs, unless an exclusion applies, regardless of whether interest is payable on the loan. No relief is given for the tax paid on a loan if the loan is repaid. However, there are, for example, narrow exemptions for “cashless exercise” facilities and some types of car ownership schemes.
 
Given the wide drafting of these new rules, a good deal of attention has been given to whether or not their narrowly-worded exemptions will apply to particular arrangements. There remain numerous areas of uncertainty and extensive discussions between the Treasury, the Revenue and representative bodies have led to lengthy guidance notes which are intended to clarify the legislation. At the time of writing, these guidance notes (which extend to more than 200 pages on the HMRC website) are still in draft form (even though the new rules have effect from 6 April 2011), but it is expected that they will be in final form by the end of October 2011. Some commentators have expressed disappointment that the Government has decided to deal with areas of uncertainty by issuing guidance (which can, of course, be changed or withdrawn at short notice) rather than by amending legislation.
 
The promise of an asset in the future may also be taxable
As mentioned above, the new provisions can impose a charge when a third party “earmarks” a sum of money or asset with a view to taking another “relevant step” in the future. This could occur where, for example, an EBT  (employee benefit trust) allocates shares or cash for designated employees under a share award plan or a deferred remuneration arrangement. In the case of some share awards and options, there is, however, an exclusion from an “earmarking” charge if they have a maximum vesting period of 10 years (where there would be an income tax charge in the normal way on vesting or exercise in any event). This is welcome as it matches the typical lifetime of a share option. The maximum vesting period in the equivalent exclusion from an “earmarking” charge for deferred remuneration, however, is 5 years (which does not sit well with the Financial Services Authority’s Remuneration Code which requires a minimum deferral period of 3 to 5 years).
 
In some cases, therefore, companies might wish to make adjustments to their current arrangements (for example, to the way in which vesting schedules operate) to ensure that, to the extent necessary, they are able to take advantage of any relevant exemptions, without having to rely on the views expressed in the HMRC guidance.
 
This is an uncertain new area of law and care will often be required
One point is clear, nevertheless. The scope for designing bespoke employee share plans without triggering a tax charge is now substantially reduced where an employer wishes to use existing shares held by third parties rather than newly-issued shares or treasury shares. Employers will, therefore, need to consider very carefully the implications of these differences in treatment.
 
This is likely to be a complex and uncertain area of tax law for some time and employers will need to remain vigilant in order to avoid triggering a tax charge unexpectedly.