The Taxman takes his revenge on EBT’s…..

Scaring amounts

Its been a long time coming, back in 2011 HMRC gave employers the chance to settle amounts owed in relation to Employee Benefit Trusts.

So what were EBT’s and how did they work…

The employee benefit trust (EBT) was used for many years as a way of avoiding corporation tax and income tax for employees.

Basically, any cash that was moved from the company account into the employee benefit trust was treated as an expense for the company, thus reducing corporation tax liability. The company could even then loan the cash back from the EBT as required in the future and additionally interest was charged on the employee benefit trust loan creating even further expenses for corporation tax avoidance. The key employees were then able to also either get an employee benefit trust loan, which was constructed so that it was never paid back, or they could take cash bonuses, which were taxed.

Scottish businesses involved in EBT’s could now face a tax bill of £400m

Scottish EBT schemes reportedly received letters warning them that the taxman is pursuing cases against EBTs, adding they had a 20% chance of winning any court case outright, a 60% chance of partial victory and 20% risk of an HMRC victory. A partial victory is likely to see businesses paying around £400,000 for every £1m ring-fenced, while a negotiated settlement would likely lead to payments of £412,000 for every £1m.