EBT settlement deadline looms

COMPANIES operating employee benefit trusts (EBTs) have until 31 July to settle with HMRC or risk facing substantially larger tax bills as a settlement regime run by the tax authority comes to an end.

Businesses which used EBTs had to register their intention to settle with HMRC by 31 March 2015, in order to benefit from more favourable terms of the EBT Settlement Opportunity (EBTSO).

A formal settlement with HMRC must be agreed by 31 July 2015, including any ‘time to pay’ arrangements where payment cannot be made in full.

Top ten firm Moore Stephens advised that if companies that used the schemes fail to settle then litigation will follow. HMRC has warned that employers who fail to agree to an EBT settlement before 31 July will be brought before the tax tribunal as quickly as possible.

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, sometimes for as long as 100 years. The arrangement would typically reduce their liability for employer’s national insurance, and reduce the income tax bills of employees.

Several high-profile companies used EBTs before the rules governing them were changed in late 2010.

Investment banks and football clubs including Glasgow Rangers FC are among those in dispute with HMRC. Other users of the trusts included owner-managed businesses looking for tax-efficient ways of taking money out of their business.

Partner and head of tax investigations and disputes at Moore Stephens Dominic Arnold said: “If HMRC are serious in their threat to litigate we could see a large number of cases relating to EBTs move into litigation from 1 August 2015. Whilst some promoters of EBTs are actively addressing the threat of litigation, others in my experience are not.

“However, although HMRC has limited resources, it remains to be seen whether it will offer official or unofficial extensions to the settlement regime, especially if there is a late surge of companies trying to settle. However, those who wish to take advantage of the EBTSO should not rely upon this happening and take action now. EBT users may also face accelerated payment notices from HMRC in the coming months, forcing them to pay up front the disputed liabilities.”

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