EBT Settlements

EBT Settlement Opportunity (EBTSO)

Up until 31 March 2015, HM Revenue & Customs (HMRC) offered employers who had used Employee Benefit Trusts (EBTs) and similar arrangements the opportunity to resolve outstanding enquiries and thereby obtain certainty over the tax affairs of all concerned.

The old details

In essence, any Settlement under the EBTSO included all the taxes plus interest that are due but there were no penalties.  At first, this may not have appeared to be much of a “deal” but in reality it was be because:

• the company was entitled to a corporation tax deduction for the contributions made into the EBT including interest on any refunds due
• the company and employees avoided a Relevant Step as described in the Disguised
  Remuneration rules under Part 7A
• the Settlement negotiations included a Time To Pay arrangement
• it brought certainty and a conclusion to a number of tax years for both the company and employees concerned
• all parties avoided potentially lengthy litigation that can be costly with no clear outcome foreseen

The new details

• the company will still be entitled to a corporation tax deduction for the contributions it made into the EBT including interest on any refunds due
• the company and employees may still avoid a Relevant Step as described in the Disguised
  Remuneration rules under Part 7A
• any Settlement negotiations can still include a Time To Pay arrangement
• it will bring certainty and a conclusion to a number of tax years for both the company and employees concerned
• all parties may still avoid potentially lengthy litigation that can be costly with no clear outcome foreseen

What does it mean for the future?

Taxpayers who did not register under the EBTSO will not have certainty in their tax affairs.  Any loans from the EBT to the employee may still be repayable to the EBT.  Taxpayers will no longer receive a corporation tax deduction for the PAYE and NIC paid in Settlement.  Depending upon the facts of each case, Voluntary Restitution may apply.

Why should a Settlement still be sought?

Taxpayers may still be looking for:

• an opportunity to sell their company but may be prevented by the existence of an EBT
• a way to remove an unwanted legacy, as the original parties to the EBT may either have changed their minds or have passed away
• a sense of closure and certainty in their tax affairs

How much will HMRC now seek in terms of tax, interest and penalties?

HMRC will still seek any new Settlement with the company that has made the contributions into the EBT. The new Settlement terms will include all income tax (PAYE), Employees NIC, Employers NIC and interest.  Currently HMRC are not seeking a penalty which would otherwise be up to 200% of the tax again.

If  you wish to discuss this or any other matter with a member of the team, please contact us.