• March 28, 2024
 The Taxman never forgets

The Taxman never forgets

Contractors that used the tax efficient Employee Beneficiary Trust (EBT) are now being contacted by HMRC in relation to unpaid tax.

Any firms that may have used the scheme could now be liable for a large demand dropping through their door. Does your firm have knowledge or experience of the scheme?

EBTs worked on the basis that a contractor, without having direct contract with their client, would work with a third party based primarily in Gibraltar or the Isle of Man who would take on a contract. The contractor would then become an employee of that third party. The contractor would submit time sheets for billing which was then paid to them as an ‘employee’. The level of pay was normally deemed at a level which would ensure any NI contributions were met for pensions and benefit entitlements, but not much more. The offshore company would then provide the rest of the outstanding money (contract value) to the contractor as an interest-free loan.

EBTs, have been around since the late 1980s and have been used extensively by high-earning employees ranging from IT specialists to Premier League footballers. They were used to minimise the income tax and national insurance charge on remuneration to employees and directors, and also generate a claim for corporation tax deductions for payments into the trust.

It has been reported that some contractors have stated the only way to resolve this is via bankruptcy, because HMRC does not negotiate.

Also, some of the affected firms that were using similar schemes have now been served with an Advance Payment Notice (APN) by HMRC. An APN is where HMRC has decided that a firm does owe them money. The amount demanded by them includes simple interest on the sum in question, dating back as far as 2010, and which is accumulated daily. There are, however, a number of firms contesting the legality of the APNs on the basis of it being unreasonable and exceptionally punitive. These test cases are due to be heard within the next few months. If HMRC believes the scheme firms participated in was non-compliant, then they do not discuss details of the case until it’s been brought to court.

HMRC also has the power to attain the money directly from a firms account, should they deem them non-compliant in paying.

The raid on EBTs, announced in December 2010 and confirmed in the Finance Bill on 31st March 2011, means that any employees, beneficiaries or trustees of EBTs now need to evaluate the continuing usefulness of these structures. Additionally those that are in dispute with HMRC over the tax consequences of setting up and using EBTs, should now consider some form of compromise with HMRC to bring the tax affairs of those involved fully up to date.

It has been reported that any firms who’d utilised EBT arrangements for the years prior to 2010 are now being chased for five or even six-figure sums. Do you think HMRC are acting within their rights?

Please let us know your views on this subject by leaving a comment below.

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