As a much greener tax adviser than I am now, I recall being sat in an office in London in around 2009 considering the merits and dangers of an EBT that was being promoted to one of my clients. The promoter was promising that the initial contribution by the employing company into the trust was corporation tax deductible, and I disagreed with that element of the analysis amongst other things. Ultimately the client decided not to do the EBT and instead sought more orthodox solutions to extracting profits from the company – but many did not…

It was not until the high profile Rangers case that the dangers of the EBT, and HMRC’s views on such, really became clear. And since then HMRC has been relentlessly pursuing employment tax on amounts lent out from EBTs. The EBT ‘settlement opportunity’ ended on 31 March 2015, since when settling EBT related tax liabilities comes with additional penalty – but clearly HMRC are finding it difficult to collect that tax and on 16 March (Budget Day) they announced that all pre 2011 EBT loans outstanding on 6 April 2019, in respect of which no employment tax has been paid, will be taxed as such at that date. Ouch.

This seems to be HM Treasury reaching the end of its patience and effectively introducing retrospective tax legislation of a kind to deal with the challenges of collection. And that it seems is the end of the tax driven EBT…

The relevant extract of the HM Treasury document is shown below:

New charge on outstanding disguised remuneration loans

9. Another change to tackle the use of disguised remuneration schemes to date is the introduction of a new tax charge on all outstanding disguised remuneration loans.

10. The charge will apply where:

a. The loan was made at any time prior to the amendments to Part 7A, outlined in Chapter 4, coming into force (including where the loan was made before Part 7A was first introduced);

b. If the same loan was made after those amendments came into force it would be taxable under Part 7A (including if it would already have been taxable under Part 7A if made before it was amended); and

c. The loan, or part of the loan, is outstanding on 5 April 2019.

11. The new charge will not apply where:

a. The loan has been repaid in full before 5 April 2019;

b. The loan is from an amount on which income tax has been accounted for in full, including all years settled under HMRC’s recent settlement opportunities, before 5 April 2019;

c. The loan has been taxed in full under Part 7A before 5 April 2019.

12. A loan is within the scope of the new charge if, had the same loan been made on the date that the new legislation comes into force, it would be taxable under Part 7A. This includes the amendments to Part 7A that are set out in Chapter 4 above.

13. Where this is the case, the charge will fall on any amount of the loan that has not been repaid before 5 April 2019. This means that there will be a period of grace in which the loan can be repaid in full, or the user can settle with HMRC, to avoid the new charge being triggered.

14. In the case of extremely old loans it is possible that it would be very difficult or impracticable to identify whether the loan was a disguised remuneration loan and the amount of the loan still outstanding on 5 April 2019. Consideration will be given to any such situations when legislation for these proposals is drafted.

15. Since the new charge will be part of Part 7A the charge will fall on the relevant employer in the first instance.

Example 5

An employer ‘B’ directly placed £200,000 into an EBT ‘P’ prior to December 2010 in order to remunerate an employee ‘A’. Shortly afterwards P made a loan of £195,000 to A.

If that loan is outstanding on 5 April 2019 the new measure will charge the loan amount of £195,000 to income tax and NICs. The £5,000 not borrowed by A is not subject to the charge but may be caught by Part 7A at a later date.

If A repays the debt to the P before 5 April 2019 there is no charge under the new measure as there is no debt outstanding. However, the £200,000 now held by P may be caught by Part 7A at a later date, for example if it were distributed to A.

There could be an earnings charge on the contribution to P prior to December 2010. More detail is provided in Chapter 6.

Example 6

The facts are the same as in Example 5 above.

However, before 5 April 2019 a settlement is reached between B and HMRC on the basis that the £200,000 was earnings of A.

On the 5 April 2019 B does not have to pay the new charge as the same amount has already been taxed as earnings.

Example 7

An employer ‘B’ contributes £200,000 into a scheme involving a third party ‘P’ in January 2013 in order to remunerate an employee ‘A’. Shortly afterwards, after a series of intervening steps, the end result of the scheme is achieved, which is a debt of £190,000 owed by A to P.

If that debt is outstanding at 5 April 2019 the loan amount of £190,000 will be charged to income tax and NICs, since the arrangement, were it made at that time, would be caught by Part 7A.

The £10,000 not borrowed by A is not subject to the charge but may still be caught by Part 7A at a later date.

If A repays the debt to P before 5 April 2019 there is no charge under the new measure as there is no debt outstanding. However, the £200,000 now held by P may be caught by Part 7A at a later date, for example if it were distributed to A.

However, it should be noted that there could be a Part 7A charge as a result of the contrived steps taken in January 2013 and HMRC may pursue this charge.

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