Employee Benefit Trusts And HMRC Tax Debts

Employee Benefit Trust Tax Demand From HMRC?

Employee Benefit Trusts and HMRC arise as an issue because Tax avoidance is big business. HMRC is attempting to deal with addressing the country’s tax revenue and has been for some time now, particularly since the Rangers Supreme Court decision. As a result, if you are faced with a demand from HMRC in relation to Employee Benefit Trusts (EBTs) we can help but to assist you really need to Act Without Delay!

HMRC is pursuing the collection of tax on Employee Benefit Trusts, through the deployment of Accelerated Payment Notices.

Insolvency practitioners can help in advising companies or individuals who are in difficulty paying tax they owe. If you or your company has received an APN from HMRC, you should not delay or avoid the issue but act now and take advice.

What Are Employee Benefit Trusts?

Employee Benefit Trusts have been used to undertake tax planning. That form of tax planning had to be disclosed at the time to HMRC under the Disclosure of Tax Avoidance Scheme rules (DOTAS).

An Employee Benefit Trust is a trust scheme which can be established either in the UK or offshore, set up by a company to hold cash and other assets, to provide benefits to employees for the purpose of attracting and retaining quality staff.

However, certain tax planners marketed EBT’s to companies on the basis that they might permit companies to pay money into such an employee trust for the employee’s benefit. Such schemes became commonly involved in issuing loans to the employees on the basis of there being no tax charge. In light of the perceived tax planning benefits, these schemes appeared helpful to owner manged businesses. The routine developed, whereby a company paid funds into an Employee Benefit Trust, for the benefit commonly of the Directors, who were then loaned monies out of the trust on attractive terms.

Employee Benefit Trusts And HMRC Challenges

HMRC have rejected the legality of many of these schemes. HMRC appear to have long taken the view that they were in effect disguised remuneration schemes and tax delaying opportunistic approaches to tax planning. All too often the loans were never repaid. The process for HMRC to challenge such schemes was by the Tax Tribunal process, which, given the large number of such schemes meant that they could take many years a case would be heard.

HMRC’s Accelerated Payment Notices

The Accelerated Payment Notice (APN) and Partner Payment Notice (PPN) Legislation, introduced in 2014, increased the options of HMRC for collecting in the tax. HMRC was now able to issue APNs which required companies to pay an amount of tax, assessed by HMRC, in advance of a Tax Tribunal hearing. The idea being that the money was with HMRC but in theory repayable if the taxpayer won at the Tax Tribunal.

This reversed the normal position whereby monies would ordinarily be held by the taxpayer pending a Tax Tribunal decision.

Accelerated Payment Notice And Cash Flow

Many Directors of companies that used EBTs believed that they were a proper tax planning device and although they might have been warned that HMRC could even change legislation retrospectively, many assumed that there would be no unfavourable tax consequences.

As a result many companies faced cash flow difficulties when HMRC came knocking and issued the APNs on the companies. Difficulty in paying tax owed ie. being unable to discharge debts when they fall due is evidence of insolvency.

Employee Benefit Trusts And HMRC: The Challenge To APNs

A number of taxpayers have challenged the legality of the APN Legislation through the courts. However, such challenges have largely failed. It is now difficult to see how payment of APNs can be delayed for a further period.

Employee Benefit Trusts And HMRC Follower Notices: Potential 50% Penalty

HMRC have started to issue Follower Notices to companies which set up EBTs based on the fact that similar EBT schemes were said to have been set up to that in the Ranger’s decision. If a taxpayer does not pay the stipulated sum in the Follower Notice and they subsequently lose their case, HMRC can apply a penalty of 50%.

What To Do If You Cannot Pay Tax Due Under An Employee Benefit Trust?

If you are a company Director or have a client with an EBT but are unable to pay an Accelerated Payment Notice or Follower Notice, we can advise companies who are struggling to pay the tax owed and assist in addressing such insolvency issues arising from the same.

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