Employee Benefit Trusts – The net tightens!

Employee Benefit Trusts (“EBT’S”) had become more prevalent over the last 10 – 15 years or so and were most heavily marketed to companies between around 2007 and 2014 as a means to reward employees in a tax efficient manner.

Typically companies would pay monies into a trust which could then be loaned to the employee on favourable terms without PAYE and NIC charges.

The schemes, which had to be notified to HMRC under their own disclosure rules were compliant with legislation and advice at the time and enabled companies to provide a significant benefit to its employees.

The net effect of these increasingly prevalent schemes was hundreds of millions of pounds of lost or unpaid tax revenue and unsurprisingly HMRC sought to close these loopholes resulting in hundreds of tribunals and significant delays before HMRC ‘s case could be heard.

The now famous Glasgow Rangers FC case marked a decisive victory for HMRC and the EBT net began to tighten. HMRC has always maintained that EBT schemes were not legal and viewed them as aggressive tax avoidance. Accordingly they are looking to challenge schemes retrospectively and armed with greatly increased powers.

The Accelerated Payment Notice (“APN”) was introduced in 2014 and allows HMRC to require, pending a Tribunal, payment of tax assessed by HMRC to be due under the EBT scheme.

Clearly, receipt of an APN could have a serious effect on a Company’s cash flow as it is required to pay potentially tens or hundreds of thousands of pounds to HMRC on short notice and in many instances this will result in significant financial distress.

Whilst the funds would be returned by HMRC, with interest, if the Company were to be successful at the Tribunal it is the Company who has to overcome the problems caused by its payment being held by HMRC pending a decision.

The legality of APN’s has been subject to challenge but in December 2017 the Court of Appeal handed down a ruling which supported the earlier decisions in favour of HMRC.

In conclusion, HMRC is winning its battle against EBT’s and the increasing use of APN’s represent a significant and serious threat to those companies that have used these schemes.

If your company has an EBT you should talk to your professional advisors or to a licensed Insolvency Practitioner. Alternatively, you can contact us for immediate advice.