Employee Benefit Trusts or “Disguised Remuneration”
Whilst HMRC’s general position is changed by the Loan Charge Review findings from December 2019 (see below), HMRC’s ongoing Settlement Opportunity remains available and is intended to encourage employers and companies who had used EBTs and similar “disguised remuneration” structures to settle any outstanding tax and NICs without the need for HMRC to consider litigation.
The principle behind the Settlement Opportunity is that HMRC will seek to settle outstanding enquiries on the basis that payments and allocations made to individuals out of EBTs will be treated as earnings from an employment and the income taxed once and for all on that basis.
In addition, and depending on the way in which any individual schemes may have been set up and implemented, to achieve clarity and closure for customers in respect of their use of EBTs settlements can cover:
- Income tax (PAYE)
- National Insurance Contributions
- Corporation Tax
- Inheritance tax
- Other taxation charges on the EBTs and beneficiaries
Once the detail of any settlement is agreed it:
- Allows you to pay the tax and NICs owed to HMRC
- Avoids the high costs associated with complex enquiries and litigation
- Gives certainty on the different tax provisions involved
Loan Charge Review
In September 2019, the Government commissioned an independent Loan Charge (LC) review to be undertaken. The review was published on 20 December 2019, together with the Government’s own response to the review, which can be found here:
Briefly, the overview is:
- The 2016 Budget on 16 March 2016 announced the Loan Charge
- The loan charge taxes all Disguised Remuneration (DR) loans that are outstanding on 5 April 2019 made on or after 6 April 1999
- Statutory provision for the Loan Charge was included in the Finance (No.2) Act 2017 , with supplementary provisions in the Finance Act 2018
- Finance (No.2) Act 2017 will be amended as a result of the loan charge review and details of changes will be announced in the next budget in 2020
- The amended loan charge will tax all Disguised Remuneration loans that are outstanding on 5 April 2019 but only those made on or after 9 December 2010
- Also, the loan charge will not apply to DR loans made between 9 December 2010 and 5 April 2016 where the avoidance scheme use was fully disclosed to HMRC and HMRC did not take action
For settled cases – what should I do now?
- Check all DR loan/EBT cases settled after 16 March 2016 which include any Voluntary Restitution element
- If the VR element is for a year no longer in scope of the loan charge then a refund is potentially due, subject to full disclosure to HMRC for the later years mentioned above
- HMRC won’t be able to refund until Finance (No.2) Act 2017 is amended
- If a VR refund looks as if it is due then we suggest early flagging up of that prospect up to HMRC as we doubt HMRC will be rushing to hand out refunds (!)
For stalled settlement cases in process with HMRC – what should I do now?
- The November 2017 settlement terms will be revised to take into account the changes to the loan charge as outlined above
- Expect revised settlement terms to be issued in early 2020
- Late payment interest was generally halted at 30 September 2018 and this date will likely continue so long as completed settlement within the timeframe HMRC set
For new settlement cases – what should I do now?
- In view of the slimmed down loan charge HMRC will still have a lot of cases to settle where enquiries are open for some years (or not)
- Expect the doors to settlement to open again – we believe that HMRC are unlikely to have the capacity/staff to litigate what will be left
- Watch this space, but take professional advice
Can Independent Tax help?
At Independent Tax we remain committed to pro-active, no nonsense support and advice for such matters and welcome discussions aimed at supporting clients through this on-going saga. Having been engaged in settling such cases with HMRC over a prolonged period, we have key contacts and relationships within HMRC that help to ease conclusions of such matters.
HMRC recommends that anyone considering the EBT Settlement Opportunity should firstly seek advice from a professional advisor.
How can we help
We have been dealing with HMRC related troubles for a combined period of over 150 years, having dealt with hundreds of cases both as former HMRC Investigators and assisting and supporting clients in our time in practice. Our clients tell us that they value our extensive knowledge and genuine "hands on" accessible and no nonsense approach to any matter involving HMRC and disputes and difficulties with them.
We operate nationally, or internationally, and are not tied to our desks.
We believe in giving a clear and no nonsense level of support with affordable fees and costs. Our pricing structure is affordable, and we will fix budgets for our engagements avoiding the traditional open-ended, "on the clock" approach of larger firms and our competitors.
To discuss this with us on a non-judgemental, discrete and no-cost basis call our helpline 0800 001 6686 or contact us today.
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