Phone group takes bonus scheme to Lords

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Although chancellor Gordon Brown closed the loophole in November 2002, if the Inland Revenue prevails at the House of Lords in the so-called ‘Dextra’ case it could issue tax bills to scores of institutions with similar structures.

The Caudwell Group set up an employee benefit trust in December 1998 under the advice of Ernst & Young. It is now believed to hold more than £20m, and has 117 members.

Court papers record that E&Y explained such a vehicle ‘offers flexibility as the trustees can provide benefits in a wide range of ways which may also be tax efficient’.

EBTs were hugely popular with City investment banks during the boom years, often paying high-flying corporate financiers huge bonuses. ‘EBTs are there to benefit our employees. The EBT has motivated employees to contribute and participate in the success of the group,’ said Prakash Gupta, group tax manager of The Caudwell Group.

Barristers acting for Caudwell, which owns high street store Phones 4U, are expected to file an appeal petition with the Lords tomorrow, in time for the end of February deadline.

Court papers from the original appeal in April 2003 record that ‘various benefits were made available by the trustees to three shareholder directors, the wives of two of the directors, and the mother of two of the directors.’

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