Avoiding Tax

[Svalbaard]

Yes, so all sign up with Lisa's umbrella and pay your two lots of NI like good little wage slaves.

Idiot. I was going to expand on why but realised that I couldn't be bothered to explain it to someone as stupid as yourself.

[Vallah]

OK, so if it is not a fact, please explain under what circumstances someone who lives in the UK, works in the UK and is tax resident in the UK would not be liable for UK taxes?

People using EBT schemes who live, work and are tax resident in the UK pay UK tax on all their UK income, so I'm not sure what relevance your question has.

[BlasterBates]

Well I work for an EBT provider, and must take issue with the opening post, especially the statement "there is no way that you will take home 85% of your income legally.".

Our contractors pay UK tax on both a salary element AND EBT element, and all income is fully disclosed to HMRC. While it obviously isn't as much tax as HMRC would like to receive from somebody paying full PAYE and NI, it is ALL disclosed and there is nothing illegal about it. The right to use existing lax laws to minimise a person's tax is perfectly legal. I can understand that many people on here will see such schemes as too risky given the Montpelier case, and that's their choice and perfectly understandable, but the fact remains that the use of EBTs is perfectly legal and used by thousands of contractors to minimise their tax burden. In 5 years of our scheme, none of our contractors have had any problems with HMRC as a result of using EBTs.

It's also worth pointing out the provisions of BN66 do not apply to EBT schemes. It may well be that HMRC takes action in the next budget to make EBTs ineffective, in which case there will undoubtedly be other schemes that take their place.

Yes but you are giving your employees loans. As soon as you write off the loan tax becomes payable, and if it isn't written off, that means this loan is still outstanding, so whose to say that the loan won't be recalled!! It is a loan not the employees money.

You say your scheme was running 5 years. I knew a scheme that got busted after 10 years.
I recommend no-one to touch an EBT with a barge pole, especially when the savings are minimal compared to a Ltd.

[Vallah]

Yes but you are giving your employees loans. As soon as you write off the loan tax becomes payable, and if it isn't written off, that means this loan is still outstanding, so whose to say that the loan won't be recalled!!

The independent trustees have to act in the beneficiaries' best interests at all times. We as a company could never recall the loans.

[BlasterBates]

The independent trustees have to act in the beneficiaries' best interests at all times. We as a company could never recall the loans.

Which might be an achilles heel in a court case (is it really a loan?). It only takes one court case to bring the whole thing tumbling down.

[Vallah]

Which might be an achilles heel in a court case (is it really a loan?). It only takes one court case to bring the whole thing tumbling down.

Yes it absolutely, 100% is a loan.

[ASB]

As soon as you write off the loan tax becomes payable

Blaster, that is at least slightly questionable. If the loan is employment related then it is highly likely to be chargeable. However if the borrower is not an employee at the time of it being written off then there may be an argument the tax charge does not apply.

I think it is fair to assume there will be further legislation related to EBTs and payments both into and from them. What actual impact this will have going forwards remains to be seen.

[BlasterBates]

Tax Journal

Government has further announced in the recent Budget that it would take action to prevent attempts to avoid income tax and NIC through the use of EBTs and other arrangements 'to disguise payments of remuneration' and intends to introduce anti-avoidance legislation with effect from 6 April 2011.

Well anyone who has outstanding loans as of 2011 just may well end up with a huge tax bill. The way I see it it doesn't need even need to be retrospective, they could easily tax any outstanding loans as a benefit. Who knows.

For anyone contemplating an EBT just beware it might be very expensive.

[sal626]

EBT loans are already taxed (as a benefit)...

[BlasterBates]

That is true, I mean taxed as income or with a significantly higher benefit tax.

Put it this way, I think if the Government goes to the trouble of introducing legislation to plug the EBT loophole, you'll be paying a lot more than the 2% benefit tax, don't you think?

...and I could imagine they might put some limits on those never ending loans, after which it gets taxed as normal income.