HMRC are giving employers who have used Employee Financed Retirement Benefit Schemes (EFRBS) arrangements an opportunity to settle without having to become involved in litigation.

The offer is aimed at EFRBS set up between 2006 and 2011. EFRBS were designed to trigger a corporation tax (CT) deduction without any taxable benefit arising to employees.

HMRC believe that EFRBS arrangements do not work as intended and their view is that CT deductions claimed by employers should be disallowed. On the other hand, if an employer can show that the EFRBS was set up to benefit its employees, and contributions to an EFRBS are, in reality, payments of earnings to employees, then HMRC consider that from the date contributions were allocated to an individual, they are to be regarded as remuneration and PAYE and National Insurance contributions (NICs) will be due on these payments.

Employers who wish to settle are therefore expected to agree that one of the following options applies in their case:

Option 1: No deduction is due from CT profits for contributions made to the EFRBS until relevant benefits are paid out by the EFRBS; or

Option 2: PAYE and NICs are payable on the contributions made to the EFRBS. A deduction can be made from CT profits for contributions made to the EFRBS.

Employers have until 31 December 2013 to decide on whether they wish to take advantage of this opportunity.

Those who do not wish to settle by agreement, or do not reply, will be issued closure notices and HMRC will continue to progress their enquiries with a view to litigation.

KinsellaTax’s view:

Yet again, this highlights the long drawn out nature of a tax avoidance strategy and, in some cases, can date back seven years or more.

If you would like any advice with regard to agreeing a settlement with HMRC please call KinsellaTax on 0800 471 4546 and speak with one of our tax investigations experts today.

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