Employee Benefit Trust: What is it?

An EBT is a trust, which enables a person to own an asset on behalf of someone else, in a bid to minimize the liability to income tax and national insurance contributions. The first person being the trustee and the second the beneficiary.

The employer would make contributions into the trust, which would then be paid to the beneficiaries in the form of tax free loans, with the intention that the trustees would distribute the fund when advantageous to do so.

However, EBT’s can be complex to set up and administer and can also be expensive. As employees are only beneficiaries, they have to rely on offshore trustees exercising discretion in their favour, meaning that any benefit is not guaranteed.

EBT’s have been around since the late 80’s and have many characteristics of a pension but without the restrictions of UK pension legislation.

A settlement facility for business owners who have utilised Employee Benefit Trusts (EBT) to avoid tax will be shut down in March 2015, HMRC announced today.

The initiative, launched in April 2011, has raked in over £800 million in tax and National Insurance contributions from over 700 businesses who had used the trusts to avoid tax.

HMRC expects more businesses to settle sooner rather than later and will chase those who haven’t through legal channels.

A number of individuals looking to use EBTs to avoid tax have attempted to use the Liechtenstein Disclosure Facility (LDF) – where individuals with undeclared offshore earnings or income can make a disclosure to rectify this – to try and pay less tax,

This has led to changes to the LDF. HMRC have now restricted access to the LDF in order to prevent companies who have used EBTs from abusing the facility. Instead, they should utilise the EBT settlement opportunity whilst it is still available.

Jennie Granger, HMRC’s Director General of Enforcement and Compliance, stated:

“Time is running out for anyone who used an EBT to avoid paying tax and still hasn’t settled with HMRC through the settlement opportunity.”

HMRC’s stance on Employee Benefit Trusts

“EBTs are avoidance vehicles and we will continue to pursue those who do not pay up. I would encourage all employers who have used these schemes to take this opportunity to settle under these clear terms. They can hold out and litigate, but they may well end up paying more tax, as well as big legal fees. They are also up against HMRC’s strong litigation record – we win around 80% of avoidance cases heard in the courts.”

“This settlement opportunity is just one of a host of ways HMRC is tackling avoidance, not least Accelerated Payments which mean that many people who have avoided tax will now have to pay up quicker than ever before. This puts them on a level pegging with the vast majority of people who have nothing to do with tax avoidance and pay their tax up front.”

For advice on how to rectify your tax affairs call KinsellaTax on 0800 471 4546 and speak to one of our team.

We can provide you with a free confidential consultation, where we can assess your situation and explain the options available to you.

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