HMRC has announced that it is closing its Employee Benefit Trust (“EBT”) settlement opportunity with effect from 31 March 2015.
Following the introduction of the legislation on Disguised Remuneration (“DR”), many employers who had used EBTs to provide tax efficient rewards to their employees were left with a difficult situation to manage, as the EBTs often held very valuable assets that could not be accessed or made use of without triggering large PAYE and NIC liabilities. The threat of large future liabilities being crystallised at an uncertain date in the future has hampered the sale of some businesses and has prevented some shareholders from fully realising the value of their companies.
The DR legislation provided a way out of this situation: by agreeing to treat contributions to EBTs as if they were payments of employment income, companies could prevent future tax charges from arising under the DR rules. This has been attractive in a number of situations, particularly where:
- the value of the assets in the EBT has appreciated significantly over time, so that tax paid on the contributions to the trusts would be significantly less than the potential tax payable if assets are withdrawn from the trust;
- the contributions were made at a time when the rates of income tax were lower and where HMRC is not in time to collect NIC;
- a prospective purchaser wants to cap off any liability and unwind the trust structure (this will be especially true of US purchasers, who have particular issues with trusts);
- the beneficiaries or the company has undertaken “follow on” planning, which is under aggressive HMRC scrutiny.
HMRC has now announced that there is a cut-off date for reaching settlements under this route: employers and beneficiaries of EBTs who are considering making a settlement must contact HMRC before 31 March 2015 and the settlement process must be concluded by 31 July of that year.
It will be important for employers and beneficiaries to review their position soon and evaluate whether they would be able to benefit from the settlement opportunity as soon as possible.