A few weeks ago I wrote an article on here entitled ‘Employee Benefit Trusts (EBTs) – where are we now?‘ in which I referred to a forthcoming consultation. This has been published and I share my initial thoughts below.
Taxing of loans outstanding as at 5 April 2019 – this was the ‘big’ announcement in the March Budget in relation to EBTs and the like (including EFRBS and contractor loans). Loans not repaid or the tax settled thereon by this date will be taxed as if given on 5 April 2019 (changes to the 2011 Disguised Remuneration legislation has been drafted to include this new charge).
Although I have a number of issues regarding these changes, the main one has to be the fact that old loans (pre 5 April 1999) are excluded yet loans already investigated by HMRC and left untouched, and the enquiry closed, will still be assessed. No doubt HMRC has done its homework as to how it can achieve this but to me this seems like seeking a loophole in their own legislation to achieve their aims – not practicing what they preach!
The consultation acknowledges the interaction with Inheritance Tax (IHT) but I am disappointed they have not tackled this head on. Many who have settled their Income Tax and NIC on an EBT may be facing an unexpected IHT charge.
Nor does the consultation tackle the actual mechanics of operating a ‘Part 7A’ charge when there is no PAYE scheme to process a payment through. We have been struggling with this matter for a while now trying to set up a PAYE scheme within a trust. HMRC must ensure their legislation is backed up with robust systems to apply it.
The main message to those with loans still outstanding is to seek advice – weigh up your options as to whether to settle now, repay now or deal with this on 5 April 2019. As always I am happy to help.
Author: Nigel Holmes is a Tax Partner at Armstrong Watson; specialist Accountants, Business and Financial Advisers.
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