EBTs and the HMRC Settlement Opportunity

Historically employers used Employee Benefit Trusts (EBTs) as a tax efficient way of paying bonuses to employees.  Payments were made in without accounting for tax and National Insurance (i.e PAYE) , although usually the employer did not claim a tax deduction.

These EBTs then made loans to employees with only a small amount of annual tax paid in respect of loan benefit.

HMRC have been arguing that payments into the EBTs were fully taxable.    Some employers are not keen on litigation with HMRC and are therefore minded to settle.

The big question is how are the employees affected?

Who pays the Tax?

Employees will obviously want  their employer to pay any tax and NIC now due.  Employers  would prefer the cash to come out of the EBT fund but don’t want to upset the employees.  Employers are therefore ‘cutting deals’ with employees whereby they subsidise some of the tax hit.

Issues for employees to consider

The position will differ for each employee.  Key points to consider are:

  • Whether or not the individual still works for the company.
  • Whether or not HMRC are in time to challenge the payments.
  • What the current status of the EBT is i.e. current loans, locked in assets etc.
  • What is the cost of doing nothing?

How we can help

Forbes Dawson LLP provides employees with independent advice on the following:

  1. Bespoke advice on pros and cons of joining settlement.
  2. Long term options in relation to access and taxation of funds.
  3. Tax compliance approach to regularise historical position in the event of settlement.
  4. Ongoing tax support and tax return services if required.

Please contact us for more information and details of how we can help.




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