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Employee Benefit Trust settlement opportunity: FAQs updated

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HMRC has updated its FAQs on the 'Employee Benefit Trust (EBT) Settlement Opportunity' and provided an overview of developments since April 2011.

The ‘disguised remuneration’ legislation at ITEPA 2003 Part 7A, which applies broadly from 6 April 2011, ‘puts beyond doubt that such arrangements or schemes do not work’, HMRC said.

The legislation deals with third party arrangements used ‘for the purposes of disguising remuneration in order to avoid or defer income tax and NICs or to circumvent the annual and lifetime allowances in registered pension schemes’.

HMRC added: ‘Broadly speaking, if third party arrangements are used to provide what is in substance a reward or recognition, or a loan, in connection with the employee’s current, former or future employment, then an income tax charge arises.’

The department noted recent success in litigating cases involving EBTs. The most significant of these cases was, it said, HMRC v PA Holdings Ltd [2011] EWCA Civ 1414 where the Court of Appeal ‘upheld HMRC's arguments that an arrangement intended to deliver a bonus through an EBT was subject to tax and NICs as earnings.’

The Supreme Court will hear the company’s appeal in July 2013. In the meantime, HMRC considers that ‘the Court of Appeal judgment supports its view that arrangements to avoid PAYE and NICs through the use of EBT structures do not work’.

When it announced the EBT settlement opportunity HMRC said there was no deadline ‘but if employers or companies do not respond by 31 December 2011, HMRC will assume that they are not interested in engaging with them and will look to progress enquiries formally’.