Tax Avoidance through Employment Benefit Trust Schemes - TAS

1. EMPLOYEE BENEFIT TRUST – THE STORY BEHIND Employment Benefit Trusts, Tax Avoidance Schemesis something that has been on the HMRC’s radar for some time, and has included the HMRC assessing as to whether certain individuals are treated as contractors as opposed to staff members, as well as schemes set up in the incorrect manner. While on the surface, the schemes set up are legitimate, the problem lies in that many may be using certain schemes in the wrong way. The Employee Benefit Trust is one such scheme that has been under scrutiny, and in some instances, individuals have been charged thousands in owed taxes, simply because the trust wasn’t used or setup in the correct way. https://theaccountancysolutions.com/employee-benefit-trust-story-behind

2. In many instances, an Employee Benefit Trust is set up by a company and is used to hold cash and other assets, such as shares. This is done to provide benefits to both staff, and their family members and is used to retain quality staff members, as well as offering incentives. The trust is then a separate entity to the company, and is usually signed off by a Board of Directors, which will include details as to why the trust was set up. However, the way in which companies were taxed when accounting for deductions made to the trust meant they were paying less corporation tax as a result. While this is completely expected, it wasn’t long before loopholes could be taken advantage of.

3. Am I Doing Anything Wrong? There is no straight answer in relation to this, as a number of factors can come into play. However, the first thing you should determine is to why an Employee Benefit Trust fund was set up. Not all companies are looking to evade tax, many may have been misinformed as to what the purpose of an EBT is, and until recently, have seen no harm in using them. However, if it was set up merely to reduce tax, then it could be likely that the HMRC would ask for backdated tax. Again, this can depend on many factors, but seeking the advice of a professional and reputable accountant is advisable. The main purpose of an EBT is to reward and incentivise employees, who in turn are keen to see the company fare well, and yield the rewards at a later date. This can include the granting of share options, or cash payments to beneficiaries. The company in charge can also hold shares in a way that a company can’t, meaning that a market can be created of unlisted shares, thus making share options attractive to those working for a particular company. https://theaccountancysolutions.com/employee-benefit-trust-story-behind/