Reply to: Avoiding Tax

[ASB]

Even though most of the EBT providers are based offshore and don't pay corporation tax?

That, as ever, is of course the question. Dextra, as was mentioned by Alan established that the payment into the trust (which if I remember correctly was a family benefit trust of sorts) was denied CT relief - and subsequent to this there is specific legislation of course. It also established, again if memory serves, that the payments made out of the trust were not taxable.

Thus, under the current rule set, the impact is such that the comapny get no CT deduction, the employees get no tax bill. Broadly neutral probably, though there may still be savings related to NI.

I do imagine it would be fairly easy to draft appropriate legislation easily achieved to ensure the objectives of denying CT relief until income tax is paid (flying pig alert judging by history though, they haven't been too good at it in the past).

Now, as you rightly point out, what about when the payment into the EBT comes from an offshore entity.

I guess there are two basic issues: how does the payer get the money in the first place? Is there anyway of trying to ensure this does not get CT relief? Legislating against this is going to be rather more difficult.

Overall I imagine there will be some changes. Providers of this sort of tax planning will be busy, it'll close off some avenues and open up different ones. So the system carries on repeating itself.

[Alan Jones]

I would expect changes in the finance act. So, as is common it will be implemented with retrospective effect to the beginning of the tax year. The intention has already been stated. I suspect that quite a lot of it will be geared to ensuring the there is no corporation tax deduction on contributions to an EFRBS or EBT until benefits are paid which are actually charged to tax (rather than just potentially charged to tax).

The Dextra Case which went to House of Lords determined that there was no corporation tax deduction for payments into EBT's. As a result of this case and legislation that was introduced before the Dextra Case was decided (which basically did the same thing just in case HMRC lost the Dextra case) scheme promoters used offshore companies to employ contractors and pay monies into EBT's . These offshore schemes are not subject to UK corporation tax rules and most of them do not pay any company tax.

It would be very speculative to say how the UK will stop such schemes except that they have announced they intend to do so from April 2011 (NOT forgetting that some of these schemes may not work under existing law depending on how they are administered - see separate thread on EBT's). Draft legislation could be released as early as 9 December 2010.

[Vallah]

It will, in my view, be much easier for the government to attack the tax treatment of funding on the way in than attacking the way the benefits are paid out.

Even though most of the EBT providers are based offshore and don't pay corporation tax?

[ASB]

Hi Potsie

I haven't seen anything else unfortunately - as far as I know details of the legislation haven't been announced yet but maybe the panel have heard something?

I would expect changes in the finance act. So, as is common it will be implemented with retrospective effect to the beginning of the tax year. The intention has already been stated. I suspect that quite a lot of it will be geared to ensuring the there is no corporation tax deduction on contributions to an EFRBS or EBT until benefits are paid which are actually charged to tax (rather than just potentially charged to tax).

This could certainly be significant to those who use these structures to provide income after they have ceased to be UK resident (or indeed are non dom and taxed on a remittance basis).

It will, in my view, be much easier for the government to attack the tax treatment of funding on the way in than attacking the way the benefits are paid out.

[LisaContractorUmbrella]

Hi Lisa,

Do you know when the details of the actual legislation get released i.e. so that the impact on current EBTs can be properly assessed?

I would have thought they'd need to be released well in advance of the 6th April 2011 tax year commencing?

Hi Potsie

I haven't seen anything else unfortunately - as far as I know details of the legislation haven't been announced yet but maybe the panel have heard something?

[Potsie Webber]

From HM Treasury Budget press release:

Use of trusts to reward employees
The March 2010 Budget announced action to tackle arrangements using trusts and other vehicles to reward employees which seek to avoid, defer or reduce liabilities of employees and directors to income tax and National Insurance Contributions or to avoid restrictions on pensions tax relief. The Government confirms that Employer Financed Retirement Benefit Schemes are within the scope of this measure. Legislation will take effect from April 2011.

Hi Mal

Hi Lisa,

Do you know when the details of the actual legislation get released i.e. so that the impact on current EBTs can be properly assessed?

I would have thought they'd need to be released well in advance of the 6th April 2011 tax year commencing?

[ASB]

Is this to do with the drop of tax-free employer pension contributions to £50k pa?

No an issue for me, I'm only putting away half of that at the moment.

Seems unfair lumping EBT and Pensions in the same pot.

Probably. EFRBS allowed companies to provide benefits in a different way, with slightly different taxation consequences in some cases. There is a school of though that given the restrictions on pensions now imposed it will be necessary to make some changes to the treatment of EFRBS otherwise the taxation consequence of larger pension contributions could be mitigated by simply rearranging to EFRBS.

[Scrag Meister]

From HM Treasury Budget press release:

Use of trusts to reward employees
The March 2010 Budget announced action to tackle arrangements using trusts and other vehicles to reward employees which seek to avoid, defer or reduce liabilities of employees and directors to income tax and National Insurance Contributions or to avoid restrictions on pensions tax relief. The Government confirms that Employer Financed Retirement Benefit Schemes are within the scope of this measure. Legislation will take effect from April 2011.

Hi Mal

Is this to do with the drop of tax-free employer pension contributions to £50k pa?

No an issue for me, I'm only putting away half of that at the moment.

Seems unfair lumping EBT and Pensions in the same pot.

[LisaContractorUmbrella]

From HM Treasury Budget press release:

Use of trusts to reward employees
The March 2010 Budget announced action to tackle arrangements using trusts and other vehicles to reward employees which seek to avoid, defer or reduce liabilities of employees and directors to income tax and National Insurance Contributions or to avoid restrictions on pensions tax relief. The Government confirms that Employer Financed Retirement Benefit Schemes are within the scope of this measure. Legislation will take effect from April 2011.

Hi Mal

[malvolio]

Hi Malvolio,

When are the 2011 regulations due to for publication?

Dunno, TBH. Probably in the next budget statement. Will try and find out.

[Potsie Webber]

If you would touch them, what's the problem...?

Lisa's been around here almost as long as I have and has always been open about her role (hint: look at her forum handle...) . While she defends the umbrella model I've never seen her advertise or promote her own services.

Mr Puma is right, there are no absolute certainties in any of this, but it would be a very foolish advisor who recommends a bog standard contractor to take up any of these options until the 2011 regulations are published and we know where we stand. As I've said before, if you're already in an EBT of some kind, you may have a defence, but someone joining one now when they are due to be either closed or severely curtailed (one option for example, is to change the tax treatment of the parent company so wiping out the profit margin they rely on) would have one hell of a job persuading Hector he did it for solid business purposes.

Hi Malvolio,

When are the 2011 regulations due to for publication?

[malvolio]

Did the OP start this thread as the basis for a free advertisement of their services?

I thought you had to pay CUK to advertise!?

Personally, I would touch an brollie with a barge pole but that's my informed choice.

If you would touch them, what's the problem...?

Lisa's been around here almost as long as I have and has always been open about her role (hint: look at her forum handle...) . While she defends the umbrella model I've never seen her advertise or promote her own services.

Mr Puma is right, there are no absolute certainties in any of this, but it would be a very foolish advisor who recommends a bog standard contractor to take up any of these options until the 2011 regulations are published and we know where we stand. As I've said before, if you're already in an EBT of some kind, you may have a defence, but someone joining one now when they are due to be either closed or severely curtailed (one option for example, is to change the tax treatment of the parent company so wiping out the profit margin they rely on) would have one hell of a job persuading Hector he did it for solid business purposes.

[Potsie Webber]

When do we find out what legislation will take effect from 6th April 2011?

Any advice on how to get out of an EBT structure? Or who to speak to to get advice?

[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.

[sal626]

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