Employee Benefit Trusts being hammered by HMRC

There has been a 160% rise in the tax take from HMRC’s investigations into payroll tax avoidance and the use of employee benefits trusts (EBTs) for the payment of salaries and bonuses to the top earners at some of the UK’s biggest companies, according to analysis by law firm Pinsent Masons say Harris and Co accountants Northampton

Pinsent Masons says its calculations show HMRC investigations into payroll irregularities brought in £533m in extra tax over the past 12 months, compared to £205m the previous year, amid signs that HMRC is cracking down on the use of both EBTs and Employer Funded Unapproved Retirement Benefit Schemes (EFURBS) as a means of reducing tax liabilities.

The firm says HMRC has been trying to tackle the use of EBTs, which can also generate a claim for corporation tax deductions, for over a decade, but is now starting to make headway as a result of winning some high profile court cases and changes in tax legislation in 2010.

Ray McCann, partner at Pinsent Masons, said:

‘We expect even more activity by HMRC in the coming year as they look to close other loopholes with the aim of bringing in even more revenue in 2014. For companies with EBT schemes that have been called into question, time is running out. If they do not settle with HMRC they will face direct action and, if HMRC gets its way, far more severe penalties.’

McCann predicted that new penalties for pursuing appeals in hopeless tax avoidance cases announced in the Autumn Statement are likely to spur employers to reach early settlements, as HMRC is expected to invoke these against any remaining EBT schemes that appear reluctant to settle.

In a statement HMRC said:

‘We will not allow the abuse of employee benefits trusts (EBT) for tax avoidance purposes. The government has made almost £1bn available to HMRC to police the tax rules and we have specialist inspectors making sure any past abuse of EBTs is effectively challenged and the tax paid.’