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UK Tax Amnesty Deadline Nears For Employee Benefit Trusts

Monday, July 20, 2015

UK companies that previously used Employee Benefit Trusts (EBTs) have until July 31 to take advantage of an HM Revenue and Customs (HMRC) amnesty, or risk substantially larger tax bills, accountancy firm Moore Stephens has said.

According to HMRC, EBT arrangements aim to minimize the income tax and National Insurance charge on remuneration to employees and directors, and may also generate a claim for corporation tax deductions for payments into the trust. Legislation was passed in 2011 to establish beyond doubt that such arrangements or schemes do not work.

Employers who used an EBT prior to April 6, 2011 were required to notify HMRC by March 31, 2015 if they wished to take advantage of the beneficial terms of the Department's EBT Settlement Opportunity (EBTSO) to settle the resulting Pay As You Earn and National Insurance contributions liabilities. The EBTSO is only available to employers who notified HMRC of their intention to settle by this date, and then only for agreements that are entered into before July 31, 2015. The employer concerned must either pay all amounts due under the settlement or obtain a signed "time to pay" agreement from HMRC by July 31.

Moore Stephens warned that if companies that used the schemes fail to settle, litigation will follow. Dominic Arnold, Partner and Head of Tax Investigations and Disputes, said: "This deadline is fast approaching, and thousands of companies are yet to settle. HMRC has stated that it intends to bring tribunal cases against users as soon as possible after the deadline. There is a concern that some companies will miss this opportunity to settle on favorable terms. Although HMRC will continue to seek resolution with EBT users after July 31, it will not do so on the full EBTSO terms."

Arnold added: "HMRC is playing its cards close to its chest regarding the fine detail of the settlement terms it will offer to employers after July 31, 2015. What is certain is that the settlement terms HMRC offers after the deadline has passed will be far less generous, and if cases go to tribunal HMRC will look to recover as much as possible. EBT users may also face Accelerated Payment Notices from HMRC in the coming months, forcing them to pay up front the disputed liabilities in respect of the EBT."