Employee Benefit Trusts (EBT) – Red Flag
In 2013 I wrote a blog about EBT, the main focus was for highly paid contractors. I advised in this article that people should stay away from EBT’s as they were no longer a tax efficient structure, in fact on the contrary. This advice remains the same. EBT’s are essentially offshore trusts. The way they work is that you put all your income into the trust, the trust then pays you a basic salary. The amount paid as salary will depend on specific individual circumstances. The major part of the money the EBT pays you is in the form of a loan, which is effectively non repayable. The EBT charges anything up to 15% for this service. HMRC currently have no mechanism for charging taxes on loans. As of 2012 HMRC have stated that they will consider any loans as income and therefore taxable
HMRC had run an EBT settlement scheme which allowed business to register their intention to settle with HMRC by the 31st July 2015, and this then gave them favourable settlement terms with HMRC. Many advisors advised clients to wait to see what the court’s decision was on a land mark case involving Rangers FC and HMRC, believing that HMRC would extend the 31st July 2015 deadline. The courts ruled that Rangers FC had run a “contrived” EBT scheme structure, essentially making EBT’s illegal. I am not a football fan so honestly cannot say that Rangers FC lost the case because they are Rangers FC, for those interested the corporate entity that housed Rangers FC are now in liquidation.
Those that had been advised to wait will now be paying penalties of 50% or above of the tax due because since the landmark ruling HMRC have made it clear that they will not extend their settlement scheme beyond 31st July 2015. The advice then to any high earner should totally avoid Employee Benefit Schemes. This article goes into a little more detail.
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