HMRC to close down EBT settlement regime

by Calum Fuller

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15 Aug 2014

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HM Revenue and Customs

TAXPAYERS using Employee Benefit Trusts will lose access to a scheme allowing them to favourably settle outstanding liabilities from March 2015, HMRC has announced.

The EBT Settlement Opportunity allows those using EBTs to lower their tax bills to disclose their liabilities without incurring crippling penalties. The initiative, which launched in April 2011, has raised £800m in tax and National Insurance contributions from around 700 employers who previously used the trusts as tax avoidance vehicles.

EBTs are a loan from a trust set up by a company to pay its employees. Usually the loan does not need repayment for a substantial amount of time, some for as long as 100 years.

HMRC said it expects a number of EBT users to settle in the near future and will pursue those who don't do so through the courts, as it does not believe the schemes are a valid.

Jennie Granger, the agency's director-general of enforcement and compliance, warned "time is running out" for EBT users to reach a favourable agreement with HMRC.

She said: "EBTs are avoidance vehicles and we will continue to pursue those who do not pay up. I would encourage all employers who have used these schemes to take this opportunity to settle under these clear terms. They can hold out and litigate, but they may well end up paying more tax, as well as big legal fees. They are also up against HMRC's strong litigation record - we win around 80% of avoidance cases heard in the courts."

The settlement opportunity is "just one of a host of ways" HMRC is seeking to end avoidance, Granger said. Other tactics, such as accelerated payments, mean that people who have avoided tax will be forced to settle bills "quicker than ever before".

"This puts them on a level-pegging with the vast majority of people who have nothing to do with tax avoidance and pay their tax up front," she added.

Some users of EBTs have sought to use the Liechtenstein Disclosure Facility (LDF), under which individuals with undeclared offshore assets can settle their tax affairs with HMRC. HMRC and the Liechtenstein government have made changes to the LDF which, among other things, mean that users of EBTs that are caught by the Disclosure of Tax Avoidance Scheme (DOTAS) rules cannot take advantage of the full terms of the facility.

HMRC has advised affected individuals take advantage of the EBT settlement scheme while it is still operating.

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