Up until about 2005, Employee Benefit Trusts (EBTs) were regarded as the holy grail of tax planning by certain advisors; how to get a tax deduction for the company and money out to the ultimate owners of the businesses without income tax and national insurance.
At the time, they seemed like a fantastic idea but these were aggressive strategies as far as HM Revenue & Customs (HMRC) were concerned. They were frequently mis-sold to clients with all sorts of assurances and legal opinions provided by ‘clever’ scheme providers and their legal team as well as offshore trust companies eager to jump on the bandwagon.
For quite a few years now a newly confident HMRC, buoyed up by the mood swing against tax avoidance and successful court cases, has been challenging large numbers of historic EBT arrangements. Many of these arrangements remain in place as they can be difficult to close off without creating even more tax issues. The only winners are the offshore trustees who ‘look after’ the money and charge their annual trusteeship and administration fees.
Because of the various court cases it is necessary to engage with HMRC to resolve the various tax issues on EBTs. HMRC have been writing to all and sundry about these since about 2008 but not everyone will have responded to these letters and not all cases will have been picked up by HMRC.
Currently HMRC is offering a settlement opportunity for EBTs (see here). These issues are complex and we can review your (or your clients) arrangements to see what tax issues are currently in play and maybe whether there are any issues for the trust itself. We have historically seen some EBTs distribute all assets leaving no money behind to cover the inevitable tax costs so, even where you may think the case is closed, that may not be strictly correct.
For any particular EBTs, if you are able to provide details of the following core information, we can review your particular case and estimate the likely tax exposures as well as costs on unravelling the EBT:
- – Total contributions made to the EBT, together with details of any allocations made to sub-trusts (i.e., amounts and dates)
- – Any loans made (i.e., amounts and dates), together with any loan interest paid (or accrued) or tax / NIC paid in respect beneficial loans
- – Any distributions made (i.e., amounts and dates), together with any tax / NIC accounted for
- – Current market value of the assets held by the EBT / sub-trusts, broken down into categories of assets (e.g., loans, shares, cash etc.)
- – If known, whether the employing company took an immediate corporation tax deduction for contributions to the EBT or carried them forward as a trading loss to later profitable years.