Employee Benefit Trusts
HMRC have started taking enforcement action to tax outstanding Employee Benefit Trusts (“EBT”) loans on the basis that a “non-repayable loan” is no longer considered a loan, but classed as income. This has left many workers with potentially huge bills to pay HMRC despite obtaining professional advice as to the supposed financial advantages and legitimacy of such schemes.
If you have entered into an EBT loan or if HMRC have written to you in respect of a tax bill, you may need to defend this action, negotiate with HMRC or you may have a claim if you were advised to enter into an EBT scheme.
EBT schemes historically have been used to reduce income and NI tax contributions and have been used in different forms including a loan that was never envisaged to be repaid. HMRC successfully challenged these schemes in the supreme court decision (RFC 2012 Plc v AG for Scotland  UK SC45) the Rangers Football Club case. It was held that EBT loans were income and liable tax payments to HMRC.
Most schemes seek to pay an individual by way of an interest free non-payable loan which is not allegedly subject to income
tax or national insurance contributions. These loans were made via employment intermediaries as part of a contractor or agency worker pay package.
The Loan Charge 2019 and Review
The Loan Charge is an anti tax avoidance measure introduced by the Finance Act 2016 and enables HMRC to seek tax on all loans over the past 20 years from 6 April 1999. The Loan Charge also calculated the tax as being payable in a single year, which became substantial sums for most individual involved with EBT loans schemes.
Sir Amyas Morse undertook at review of the Loan Charge and made a number of recommendations including:
- The Loan Charge will only apply to loans taken out on or after 9 December 2010;
- Some settlements arrangements paid to HMRC should be refunded; and
- Tax payers should be entitled to spread their outstanding tax liability balance (over three years) to make more affordable.
HMRC accepted that looking back over a 20 year period is not justifiable and affordability was a real concern.
What are my Options?
HMRC have set out some guidance on payment of an individual tax liability, but more importantly there may be grounds to claim back any money you have paid to HMRC. Additionally, there may be amounts you can claim from the agency who found you the work and / or an advisor who insisted payment through an umbrella company using the EBT loan schemes. In a lot of instances, the referrals to this type of loan schemes have shown a failure in the appropriate level of due diligence required and no risk warnings were carried out or provided, not just specifically in relation to tax liability but also the implication for individuals if the scheme fails.
How we can Help?
In essence, there are three areas in which Ellis Jones would be able to assist:
- Challenging HMRC’s findings in respect of any payment requests from them;
- In some instances negotiation may be a more suitable route to consider and an early settlement as quickly as possible will
limit any exposure to additional charges once HRMC start enforcement action; and
- In respect of any potential claim against an advisor (tax adviser, accountant or other) to recover the losses suffered as a result of negligent advice on entering into an EBT scheme in the first instance.