Until recently, Employee Benefit Trusts (EBT) were used by a wide range of companies as a way to provide financially based rewards for their employees. They were promoted as tax efficient discretionary trusts in which to hold assets for employees. They were a popular choice in mergers and acquisitions, where a lump sum could be allocated to existing employees to prevent Directors using it for other means.
EBT were established and funded by the employer for the benefit of their employees. They became a holding vehicle for internal share schemes, a method of the company providing tax free loans to their employees and also provided a source of funds for social purposes. Although there were UK based schemes, the majority were held off-shore.
The issue was that many companies and providers of EBT made use of financial loopholes and so used and promoted them as a corporation tax avoidance scheme. Since the introduction of the Finance Bill in 2011, legislation has been tightened up and companies that were suspected of using EBT for tax avoidance were investigated by HMRC. Some high profile cases, negative press about EBT and the new legislation have led to the collapse of some EBT companies.
For employers who had committed to these schemes and employees who may have been paid a basic level salary, with additional remuneration coming via an EBT, the changes has left them without the financial security that they had expected.
Whether the scheme was genuinely set up to benefit employees or as part of a tax avoidance scheme, the fact is that EBT are no longer acceptable and employers and employees that have used them need to take action.
Until 31 March 2015, HMRC are offering a settlement opportunity to those who have used EBT. This temporary option allows the change for a financial settlement to be agreed and no further action such as litigation to be taken. Much like a weapon’s amnesty, this invites people to come forward and take positive action without reproach. The aim is to come to an agreement that will save both the HMRC and the individual costly investigation and intervention.
Another option is to visit a professional tax specialist who can provide independent advice on the best ways to resolve your EBT issues. Experts in EBT resolution, including Pareto Lawrence http://www.paretolawrence.co.uk/employee-benefit-trusts/ can not only advise you on the best action regarding EBT, but also assist you in building stronger foundations for your financial future.
There are also a number of companies providing an ‘off the shelf’ EBT solution. These may initially seem like the easiest and most affordable option, but they are unlikely to provide the best outcome. Both HMRC and independent tax experts are highlighting the fact that each case is unique. They were all set up and run in different ways and the financial implications will vary.
Taking the time to speak with the HMRC or independent adviser in person will allow for a bespoke resolution to be agreed. This can include repayment options that you can realistically manage, as well as the best route forward to avoid financial issues in the future.