EBT or not EBT

[NotAllThere]

This Board is full of threads about EBTs and loans. Why do we need another? ...

Because those promoting EBTs will keep using this board as an advertising forum, by pretending to be real contractors asking questions about EBTs.

[Emigre]

This Board is full of threads about EBTs and loans. Why do we need another? Why couldn't the others just be read instead?

The last entry by OP reads exactly like any marketing piece for a new scheme. I think we're all supposed to post here one after another "Who are you going with?" or "Who is it....please?"

The first post by OP was in one of the sticky threads.

Sorry, fed up explaining myself

[DaveB]

Thanks for the comments on this, over the past couple of weeks I have managed to do some further investigation which I hope is useful...

1) This has already been tested in Court and passed. HMRC will claim victory, but that is down to their ability to shut down loop holes, making contribution by UK companies to an EBT a taxable event. They are unable to do this if they do not have jurisdiction, Isle of Man for example, or further a field such as Switzerland etc etc.

Can you give us the case details? When, where, judges ruling etc?

Payments from the brolly to the EBT are irellevant. Jurisdiction doesnt matter if they decide on investigation that the loans are in fact disguised income. As a UK resident you will be liable for tax on that income. Doesn't matter where the EBT or brolly are based.

2) It would be impossible for HMRC to tax loans from trusts, companies, foundations or any other entity for that matter, as this would likely cover mortgage payments, credit cards etc.

It would be if they decide it counts as income, which is entirely possible when they start digging into the scheme. A loan to buy a house or a car is clearly a loan for a purpose. A loan from a trust set up soley to provide loans for the sake of distributing income in a different thing altogether.

3) As an employee of the 'offshore' umbrella company, it seems sensible to assume that they will charge a day rate on my behalf to the agency or end company. I simply receive a full UK salary from the umbrella company and they make a contribution to an EBT on my behalf...

Basing complex tax avoidance structures on vague assumptions is going to get you into all sorts of trouble.

4) Now this is where I found it to get interesting. Most of the existing EBT's are not set up correctly to navigate these issues, as they manage all control aspects of payment to contractors, including loans from the EBT - this negates the discretionary nature and ties everything together. If you have a very clear separate line of communication with your umbrella company and Trust and have all appropriate paperwork, there is not a court in the world that could find against this (or at least in my humble opinion).

If the loans are discretionary there is no compulsion on the trust to actually give you the money. You are placing an awfull lot of faith in the trust managers that they will do so. If there is a reasonable expectation on your behalf that they will provide the loans then there is no discretion on behalf of the trust. Doesnt matter how you divide it up the end result is the same, especially if you have the details of the arrangement in writing.

You do have a written contractual agreement on how your hard earned cash is going to be managed and how it is going to get to you, don't you?

Is your opinion that of a qualified QC with experience of taxation legislation and a track record of successfully defending these schemes in court?

Anyway, just wanted to share the above, based on my research, I will likely go ahead and use an EBT, happy to share further thoughts if anyone is interested...

BBB

So is this where you come back and post in a week or so to tell us how wonderfull XXX scheme is and how we should all be using it?

You'd have saved a lot of time if you'd just come out and tell us which scheme you are fronting for.

[LisaContractorUmbrella]

"This has already been tested in Court and passed. HMRC will claim victory, but that is down to their ability to shut down loop holes, making contribution by UK companies to an EBT a taxable event."

Huh? So does that mean it was tested in court and then HMR&C closed the loophole which means it will now be classed as tax avoidance and leave anyone using it liable for a massive tax bill at some point?

[bigbrainbrad]

Thanks for the comments on this, over the past couple of weeks I have managed to do some further investigation which I hope is useful...

1) This has already been tested in Court and passed. HMRC will claim victory, but that is down to their ability to shut down loop holes, making contribution by UK companies to an EBT a taxable event. They are unable to do this if they do not have jurisdiction, Isle of Man for example, or further a field such as Switzerland etc etc.

2) It would be impossible for HMRC to tax loans from trusts, companies, foundations or any other entity for that matter, as this would likely cover mortgage payments, credit cards etc.

3) As an employee of the 'offshore' umbrella company, it seems sensible to assume that they will charge a day rate on my behalf to the agency or end company. I simply receive a full UK salary from the umbrella company and they make a contribution to an EBT on my behalf...

4) Now this is where I found it to get interesting. Most of the existing EBT's are not set up correctly to navigate these issues, as they manage all control aspects of payment to contractors, including loans from the EBT - this negates the discretionary nature and ties everything together. If you have a very clear separate line of communication with your umbrella company and Trust and have all appropriate paperwork, there is not a court in the world that could find against this (or at least in my humble opinion).

Anyway, just wanted to share the above, based on my research, I will likely go ahead and use an EBT, happy to share further thoughts if anyone is interested...

BBB

[centurian]

Even at that stage scheme managers were saying it was legitimate and they would defend it to the hilt.

Taking the assumption that a given scheme is inherently dodgy, the scheme providers can

a) Admit it's shortfalls and make the risks clear
b) Tell everyone it's wonderful and gloss over the problems with 3 coats of paint.

In the case of a), the scheme would last about 5 minutes. Hardly anyone would take it up, meaning that the scheme wouldn't be cost effective to run.

So that just leaves us with b)

[BlasterBates]

well explained Malvolio, simple really if it isn't taxable the money belongs to someone else and you just have to trust them, very risky indeed. The worst would be that HMRC tax it anyway and the Trust runs off with your money.

I mean if you're going to take such risks, why not just gamble a proportion of the profits on the stock markets, and have some fun, if you lose it there you won't be gnashing your teeth that you were diddled.

[malvolio]

Interesting and informative blogs BTW Malvio

Ta. Spread the word...

[MPwannadecentincome]

How about reading my blog, there's a recent entry headed "A Taxing Problem" explaining exactly why EBTs are a very bad idea. Bascially it comes dow to how much you want to risk being presented with a six figure tax bill at some point in the (probably not too distant) future...

Interesting and informative blogs BTW Malvio

[DonkeyRhubarb]

ran perfectly well for 10 years

This is the nub of the problem. It usually takes HMRC 2 to 3 years before they start sniffing around. They can then keep enquiries open for several more years (well indefinitely in fact).

If the scheme ultimately fails then by the time you find out it will be too late to undo what you did, and you could find yourself facing a massive backdated tax bill with interest added for late payment.

Remember, no matter what anyone tells you, a scheme can't be said to work until either (a) it is tested in a court of law or (b) HMRC concedes that it is lawful and legislates to close the loophole going forward.

Not surprisingly, HMRC prefer (a) than (b).

[BlasterBates]

There was a perfectly "legitimate" (as the participants were informed) tax scheme, in Germany that ran perfectly well for 10 years, and then the German tax office arrested an accountant in Germany, and all the participants are now facing tax bills of several hundred grand. Even at that stage scheme managers were saying it was legitimate and they would defend it to the hilt. Well German judges don't bother with convoluted arguments on the interpretation of the finer points of tax law, to them its tax evasion so they can slap fines on to boot.

Good just an example that what might on the surface seems to be a perfectly safe solution just might drive you into financial ruin, and it comes out of the blue.

[DonkeyRhubarb]

From what I've heard, the benefits far outweigh the negatives

Many of these EBT schemes have not been running very long and (so far) people may have only experienced the "benefits".

The "negatives" (HMRC) usually come several years down the line.

[DaveB]

I just posted a reply elsewhere on the forum, but wondered whether anyone had any good or bad experiences in an EBT? From what I've heard, the benefits far outweigh the negatives and it seems reasonably straight forward to set up...

Any comments, greatly received.

And just who have you heard this from, given that the opinion on here is pretty much "Not with someone elses bargepole"?

[malvolio]

I just posted a reply elsewhere on the forum, but wondered whether anyone had any good or bad experiences in an EBT? From what I've heard, the benefits far outweigh the negatives and it seems reasonably straight forward to set up...

Any comments, greatly received.

How about reading my blog, there's a recent entry headed "A Taxing Problem" explaining exactly why EBTs are a very bad idea. Bascially it comes dow to how much you want to risk being presented with a six figure tax bill at some point in the (probably not too distant) future...

[bigbrainbrad]

I just posted a reply elsewhere on the forum, but wondered whether anyone had any good or bad experiences in an EBT? From what I've heard, the benefits far outweigh the negatives and it seems reasonably straight forward to set up...

Any comments, greatly received.