EBT Scheme – Is There an Alternative for Contractots
Employee Benefit Trust – HMRC Announces Amnesty
Employee Benefit Trusts have long been used by companies to avoid paying tax on bonuses. In addition they have been a popular vehicle for IT contractors and others to receive remuneration in a tax efficient way by taking loans from the trust.
Employee Benefit Trust – Finance Bill 2011
With the publication of the Finance Bill on 31 March 2011, which included retrospective changes to employee benefit trusts from 9th December 2010 when the draft legislation was first announced, many contractor umbrella organisations, for IT contractors especially, were caught on the hop, and had to close their employees benefit trust schemes down pronto, since remuneration distributed this way became immediately subject to tax and NIC just as if it had been paid to the employee directly.
It wasn’t just umbrella companies who made use of an employee benefit trust to receive tax free loans.
Rangers Football Club made use of the scheme to provide tax-efficient payments to employees.
In the confusion, some umbrellas ignored the announcement of the draft legislation and continued making payment to contractors,
while others switched the contractors involved to other schemes which they had on offer, or through associated companies, such as standard PAYE umbrella arrangements or self employed basis schemes –
as an aside the self employed route works quite well, after expenses are offset against tax, and at least the self employed NIC is a lot lower than for an employed person (good for single contractors who can’t share company profits with their spouse to mitigate taxation).
But I digress..
Employee Benefit Trust Amnesty
Recently HMRC offered an amnesty to employers previously operating an EBT scheme by giving them the opportunity to resolve outstanding enquiries. HMRC were never happy about such schemes and the purpose of the new legislation was to put the matter beyond doubt.
The offer by HMRC is basically to allow employers to settle without recourse to legislation, thus keeping down costs for both parties and freeing up resources. This has the benefit of at least offering closure on what might have been or become a long drawn out legal process.
HMRC have stated that they are keen to avoid the process of litigation with employers if at all possible and wish to be pro-active in encouraging companies to come forward to discuss how they sit with the current proposals.
Fortunately some organisations had the foresight to anticipate these recent events and long since set up financial structures which have emerged as remaining tax efficient vehicles despite the new legislation.
Employee Benefit Trust – An alternative?
Fortunately after the employee benefit trust scheme I was on was closed down, I did find a highly tax efficient solution that returns up to 85% of my income: