Are Employee Benefit Trusts really dead?

Companies using employee benefit trusts (EBTs) and potential beneficiaries of such trusts should seek specialist tax advice as soon as possible as HM Revenue & Customs clamps down on loopholes, writes Gerry Brown,  manager of Tax and Trusts at Prudential.

HMRC is offering employers – and employees – who have used EBTs and “similar arrangements,” the opportunity to resolve any outstanding tax liabilities without recourse to litigation.

Employers, trustees or beneficiaries willing to reach a final settlement with HMRC will have to pay any unpaid tax charges as well as interest on the sum.

This is problematical, because the precise tax treatment of EBTs has not always been clear in spite of HMRC now offering to sweep up all tax issues in one go.

Sponsoring companies and beneficiaries should seek specialist tax advice as soon as possible because it could be that a company underpaid corporation tax, or an employee received a benefit that triggered a tax charge but did not report it. What HMRC would like to do is take an EBT, look at the various tax aspects and determine where there is a liability – in respect of the employing company, current and former employees. The HMRC ambition is to reach a settlement with all parties without having to resort to expensive litigation

19 thoughts on “Are Employee Benefit Trusts really dead?

    1. A company can be within the legislation, in terms of the scope of who it catches, but that doesn’t necessarily mean the company is within IR35, because that’s contained within the legislation

    2. The legislation could create a whole raft of different anomalies as to how this is going to integrate between intermediaries legislation and T&S in terms of definitions of SDC, but also with regards to how this would all come together

    3. For Pat : In the absence of this formal definition, IR35 can apply to anyone who owns at least 5% of a company and supplies “Personal Service” via that company.

    4. The implications of the IR35 Proposals are that by making compliance with the legislation harder to avoid, more workers will be caught by IR35 rules, falling in line with HMRC’s expectations.

  1. An outstanding share! I’ve just forwarded this onto a co-worker who was conducting
    a little research on this. And he in fact ordered me lunch simply because I stumbled upon it for him…
    lol. So let me reword this…. Thank YOU for the meal!! But yeah,
    thanks for spending time to discuss this matter here on your
    internet site.

  2. Employee benefit trusts have typically been used by companies to remunerate their top-earning employees to save them income tax and NICs that would be payable under the Pay As You Earn (PAYE) regime….

  3. as per my knowledge ,Individuals who have been involved in an EBT arrangement should consider the risks and benefits of using the settlement opportunity before the end of March………

  4. Recent legislative changes will allow upfront tax demands to be used by HM Revenue & Customs to recover outstanding national insurance contributions, on top of income tax, that it claims are due from beneficiaries of employee benefit trusts

  5. The term ‘employee benefit trust’ (EBT) is used to describe a number of different sorts of trust, although they are generally discretionary trusts. In general an employer sets up an EBT as a vehicle used in a scheme to reward, and motivate employees. The benefits may be pensions, sick pay, a share of profits, shares or almost anything the employer chooses. These trusts get relief from Inheritance Tax if they meet the conditions at IHTA84/S86 (IHTM42911).

  6. Employee benefit trust are really not benefited because of the new law By HMRC every contractor is Being Watched And tax rate are rising more and more if a contractor is practicing any illegal method to save tax he will be completely fucked by HMRC

  7. I am very well aware of the trust and also aware of it’s consequences. It is not legal for sure but now even limited companies are also into radar of HMRC. All the limited companies used by contractors are now subject to increase in tax from 20% to 32% flat rate on dividends. I don’t see any way round to it.

      1. if you are a contractor working on a contract for more than 30 days then you will be considered as an employee. you will be then liable to pay tax/NI/ and employer Ni for the entire contractual amount you made in a year.

    1. All limited company contractors are scared by HMRC and in panic are opting wrong means of cashflow from their limited companies..
      These Trusts are completely not legal..

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