HMRC Strengthens Its Position: Employee Benefit Trusts

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Posted in:Banking and Finance, Business Finance, HR and Employment, Litigation|August 20, 2014 | Join the mailing list

Since forming a Government, David Cameron and the Chancellor of the Exchequer George Osborne, have made clear that they intended reforming tax.  They argued that too many companies and people took advantage of tax laws to minimise their tax liabilities, sometimes
so that they pay no tax or they pay less tax than their cleaner (see this article for a look at why such a “bogey man” is not actually true).

HM Treasury has therefore undertaken a mammoth task to review all tax laws and attempt to amend them to ensure people, the very wealthy specifically, pay tax proportionate to what they earn.  Mr Osborne also sought to ensure that whilst such people pay their
tax at the same time the law would continue to maintain a tax regime that does offer assistance in developing areas of commerce that the Government views as being essential to the UK interests.

One of the challenges faced was providing tax incentives for genuine concerns, such as helping the UK continued to build on its history as a good place for movie studios to do business.  The more films made here the bigger the income for the economy.  As such,
there are some very beneficial tax incentives available to those that invest in making movies in the UK.  

There are many other areas of tax relief that the Government wished to challenge and ultimately abolish.  With the enacting of the Finance Act 2014 the Government is seeking to abolish the Employee Benefit Trusts (“EBTs”).  EBTs are complex but simple.  Instead
of being directly employed by a company and paying tax on income and benefits EBTs allow an employee to route their excess income or benefits, such as shares that cannot be sold for a number of years, into an off-shore trust where it will increase in value
but limit tax liabilities, or in some cases totally eliminate tax liabilities.

The Finance Act 2014 effectively cancelled the last benefits attaching to EBTs.  In 2011 HMRC invited people to make an offer to HMRC to pay a discounted tax bill on the monetary value of their EBT.  That way HMRC gets tax that had been taken out of the country
and the tax payer still accrues a benefit through the discount that HMRC offered.  HMRC has now said that their “deal” to offer a discount to anyone coming forward and declaring their EBTs and paying tax on them comes to an end. 
See HMRC’s 2013 update on tax avoidance.

HMRC confirms that employers wishing to settle must notify HMRC before 31 March 2015 that they wish to settle. The actual settlement must be agreed with HMRC formally by 31 July 2015.  After this date, HMRC will be seeking the full tax that they calculate as

It is therefore in the best interests of any person who has the benefit of an EBT to seek advice as to how to approach HMRC and seek a settlement with HMRC that will see any tax bill heavily discounted.  After 31st March 2015 that tax bill will much greater. 
HMRC has been very clear since 2011 that it will pursue all EBTs that it can and seek payment of all tax liabilities.

See our other article on tax and tax avoidance here:
Tax Avoidance Schemes.
Tax Avoidance Schemes and Accelerated Payment Notices.

For more information about any of the above or for practical advice on this or any other aspect of banking and financial disputes, please contact
Kalvin Chapman of the Berg Banking Litigation Team on 0161 833 9211 or email him at

(The information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Berg or any of its partners or employees. Professional legal advice
should be obtained before taking, or refraining from taking, any action as a result of this article.) 

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