Employee benefit trusts are vehicles through which remuneration and other benefits are indirectly paid to employees. The trusts were designed to minimise the tax liabilities of employers and employees.
But the Inland Revenue said today that it had seen ‘evidence that some are being used to avoid paying income tax and national insurance’, suggesting their use has reached a level that the Revenue is no longer prepared to tolerate.
The new legislation will defer the contributor’s corporation tax deduction until a payment is made out of the trust.
Tax experts say two categories of employer will be caught by the new rules: entrepreneurial types who set up the trusts offshore but never pay anything out and large employers which develop ‘clever’ schemes to get out of paying national insurance.
Sarah Hyde, tax partner at Ernst & Young, said: ‘This is the only way he [Brown] could have stopped the abuse. But we never say die on these things.’
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