Understandably, many small business owners took advantage of the perceived benefits of using employee benefit trusts (“EBTs”) as a way of keeping a higher proportion of their company’s income. EBTs were sold to unsuspecting business owners as legitimate tax planning – and sometimes they were. But unfortunately that isnt always the case.
HMRC has for a long time challenged the effectiveness of many of these types of arrangements. HMRC’s belief, in broad terms, is that in most cases when the money leaves the company, it is at the director/owner’s disposal, and should therefore be taxed like pay.
Many were unaware of HMRC’s views, until unwelcome correspondence suddenly arrived opening enquiries or making assessments. The level of risk disclosed during the sale of these products to businesses varied widely.
The so-called loan charge then introduced a further issue, in as much as it sought to tax any outstanding loans as income to the recipients as at 5 April 2019, unless the arrangements had previously been finalised, with a settlement deadline of 30 September 2020. There were also some exemptions to the loan charge after the Morse review into the new legislation.
Many settled, but for those who have not, working out the interaction of the legislation can be very complex.
As well as helping clients settle, we have helped many understand what their actual exposure is to HMRC in relation to the planning itself and the loan charge, and ensured that HMRC adheres to guidelines.
If you want to understand whether your EBT works, whether you need to settle, whether the loan charge applies and what your options are, please get in touch.