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The FAQs are something of a curate's egg. In places there are some welcome relaxations in the draft provisions, but a number of difficulties remain and on occasion are exacerbated by the FAQs or left unclear. The absence of clear guidance and draft legislation (together with the clear indication that this is all still a work-in-progress) makes planning in this area - which is time-critical given the effective date of the full package - difficult and fraught with uncertainty.

Key points to emerge from the FAQs are:

• The new legislation will be amended to try to make sure that deferred remuneration arrangements which are entered into in order to meet the FSA remuneration code requirements (or otherwise as good business practice) do not give rise to a tax charge before the employee is in a position to enjoy the reward. In particular, the revised legislation should not apply to arrangements where employment-related rewards are deferred, provided they are subject to meaningful and time specific conditions which there is a realistic chance will not be met.
• The rules were originally designed to operate on an "employer specific" basis, with the result that many transactions entered into for wholly commercial purposes with other companies in the same group as an employer are caught.  The intention is to amend the provisions (subject to an anti-avoidance rule) so that they operate on a group wide basis.
• Many representations were focused around employee share schemes, in particular on the question of whether a sale of shares or the payment of a dividend on shares will be caught.  The intention is to amend the legislation so that a sale of shares (to a third party or an EBT trustee) will not give rise to a charge under the new provisions, nor will the payment of a dividend on shares.  An acquisition of shares by way of subscription (even for a full price) will, however, continue to give rise to a tax liability, whereas an acquisition of shares from a third party will not.  This is one of the continuing idiosyncrasies of the proposed rules.
• Many employees will have an EBT sub-fund containing assets "earmarked" for their benefit.  "Earmarking" can give rise to a charge under the new rules.  The FAQs indicate that merely receiving income or gains from earmarked assets should not give rise to a tax charge.  It is unclear from this FAQ whether there would be an "earmarking" tax charge if the income/gains are reinvested.  This is an important point for employees who stand to benefit from a sub-fund which is operating as a quasi pension scheme.  If post-6 April reinvestment could give rise to a tax charge, this will severely impact the value of their fund.  Discussion with HMRC following the publication of the FAQs has suggested that these points will be addressed and that "earmarking" and similar charges will not arise where income/gains arise on existing earmarked investments or where cash is reinvested.  If properly enacted, this will be a significant relaxation for existing arrangements which should move to earmark funds for individuals before 6 April 2011.
• It is made abundantly clear by the FAQs that the legislation is designed to have a very wide application in relation to loans made by third parties to an employee.  This is potentially a very significant issue for employees who need to borrow on a collective basis, for example, to fund their investment in a buy-out or to co-invest in a fund to meet investor requirements.  There will be a relaxation to deal with the problem of group companies (where a loan is made by a group company other than an individual's immediate employer) and the Government is considering whether certain short term loans for specific transactions should be excluded subject to an anti-avoidance purpose test.  There is no commitment to doing this.  Similarly, there is no intention to include a relieving provision if a loan is repaid.  The loan related provisions are already in force, although credit will be given for repayment of any part of a loan made in the period from 9 December 2010 to 5 April 2011 to the extent the repayment is made before 6 April 2012.
• The provisions will apply to pension arrangements, including EFRBS which are being held and invested to provide for specific employees' retirement.  The main carve out is for payments under a registered pension scheme.  But there is no carve out for other payments even if they would have been authorised payments if they had been made by a registered pension scheme; there is no "equivalence" carve out.  The arrangements will, however, not apply to wholly unfunded arrangements.  The new legislation will be amended so that it is clear that, where a payment is taxed as pension income, this will take priority over the new provisions.  As a result, certain reliefs (for example, the remittance basis and the 10 per cent abatement for foreign pensions) will continue to apply.  It is also confirmed that payments under retirement benefit plans will still be pension/retirement income and may, therefore, be protected under the double tax treaty provisions dealing with pensions.  An employee who moves abroad may be able to protect their EFRBS pension under a treaty, but they will still need to consider the "earmarking" on reinvestment issues discussed above.  The position of corresponding overseas pensions is left in the air.  It is hinted (but not made abundantly clear) that such arrangements may be taken outside the new rules entirely.
• The new rules catch many arrangements "on the hop", in that they apply to payments and benefits provided under existing arrangements.  They apply to loans and payments made on or after 9 December 2010 and, to the extent that there is money or assets in a sub-fund on 6 April 2011, the legislation will apply in its full rigour to relevant steps taken in relation to that sub-fund thereafter.  However, there is an express confirmation that loans advanced before 9 December and other assets made available before 6 April this year will remain outside the legislation; simply allowing an arrangement to continue will not bring the new provisions into play.

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