EBT-Employee Benefits Trusts
For sure, offshore Employee benefit schemes are complicated and finding useful unbiased information is a challenge. Find below information we hope will clear the mist and give you the information you need to make a decision.
What do HM Revenue and Customs say?
HM Revenue and Customs state that the purpose of an EBT is…
“To provide employees and directors with specific kinds of benefits such as loans, shares in their employing company, pensions and other retirement benefits, accident benefits or healthcare benefits.”
They also go on to say. . .
“EBT’s have increasingly been used for avoidance purposes, with the aim of providing employees and directors with benefits in ways that aim to minimise or avoid liability to income tax (and PAYE) and employers’ National Insurance Contributions (NICs).”
Well that’s pretty clear.
How do they work?
A number of companies make some ambitious claims about the level of take home pay that can be achieved by using an EBT, some quote rates as high as 85% of your contract.
Typically if you use an EBT provider you will receive a small basic salary (something around the minimum wage level) with the remainder of your income coming to you via a loan. Now even to us, this sounds a little strange, imagine what HM revenue and customs will think about it, if you are ever investigated – ‘so you receive a small salary and the rest of you money via a loan?’ but it doesn’t stop there, what happens if / when the loan is written off? Once written off, the loans become taxable and you immediately become liable for the back taxes. Now the provider may say ‘don’t worry the loan is never written off’, well that’s ok providing it’s always the same provider, however this doesn’t detract from the fact that you do and always will owe the money which will mean you may or may not be asked to pay back (it’s probably not something you’d like hanging over your head for eternity).
Additionally, as the loan is a benefit in kind (BIK) you’ll have to declare it on your tax return as income, which means you’ll have to pay the tax and potentially at some stage also have to repay the loan.
Like we said EBT’s are complicated and as with all complicated things there are specialists out there who will be able to answer all your questions and provide what may seem to be valid and compelling answers to help you make your mind up that they are the best thing since sliced bread.
HM Revenue and Customs have a little check list that may help to ensure you don’t get caught out, they state that when forming an EBT scheme, you must AVOID the following:
- Payment of bonuses via an offshore trust.
- Payment of remuneration by way of loans, which may be written off before they become repayable.
- Create an offshore ‘moneybox’ for director / shareholders of close companies.
- Allowing employees to use assets (such as cars) owned by the EBT, the costs of acquiring which would be capital expenditure if they were owned by the employing company.
- Providing benefits in the form of shares (not in the employing company) whose values can be most easily manipulated before or after they are transferred from the EBT to employees or directors.
Any of the above offers sound familiar? I am sure website's have reassured you that EBT’s are 100% legal, which they are, however I bet they forget to mention that any of the above so called ‘benefits’ being offered to you can be called in and collected at any point.
You are liable NOT the scheme provider
So if you work in the UK and use an EBT each month you will receive your small salary and the remainder of your ‘wages’ in the form of a loan or some other form of benefit. Now with your EBT headquarters offshore, who do you think is potentially at risk? You or them? You of course! Any form of payment that is not included into your monthly wages or recorded for HM Revenue and Customs places YOU at risk of avoiding tax payments, not the offshore holders.
There are a great many legitimate schemes out there, however they have mostly been developed for a very specific purposes, however this doesn’t stop some companies from re-thinking their structure and promoting them to others. Contractors have been caught out in the past, and are quite vocal about the effect it’s had on their lives, one contractor recently wrote "Please add one more frustrated, sick and naive con to the list. I had a letter arrive Thursday and it knocked me sick. Stressed about it all day Friday only to find another when I go home. Not the most settled of weekends".
Please take our advice and step back for a second and consider if the scheme really makes sense, if you are at all concerned call your local tax office and discuss the scheme with them.
There are alternatives, the main and most commonly used alternative is to trade through your own legitimate UK limited company, returns could be as high as 75% - 80%. With only a 5% increase, is investing in an Employee Benefit Trust really worth it? UK accountancy fees are nowhere near as expensive as offshore providers, SJD Accountancy only charge a fixed inclusive monthly fee of £110 plus VAT, which is one of the lowest fees in the market. So for a small fee you can gain guidance and avoid any tax issues in the near future.
If you would like to understand more about how to work through your own limited company and what you could be taking home, please visit the following pages:
Two-minute guide to contracting through your own limited company
Take home pay through a limited company
If you have any questions about becoming a contractor or would like further advice please do not hesitate to contact us on 0500 152500/ 01442 275789 or email:rachel@sjdaccountancy.com.
About SJD Accountancy
SJD Accountancy are the UK's largest specialist provider of fixed fee, limited company accountancy services to contractors; we've been acting for contractors across the UK since 1992 and have more than 11,000 clients.
We are the only National specialist firm of accountants with offices in all major UK cities so you’ll never be far from your accountant. SJD also have more qualified staff than any other firm in our market with qualifications from the following major tax and accountancy bodies - ATII, ATT, ACCA, CA, ACA, FCCA, ACMA. You’ll also be pleased to know that we are one of the lowest priced as well.
SJD have also won every relevant industry award possible, including:
- Best Contractor Accountants - Contractor UK 2011 - 2007
- Accountant of the Year - The British Accountancy Awards 2011
- Best Professional Team of the Year - UK Customer Experience Award 2011
- Customer Commitment Award - Institute of Customer Service 2011
- National Chamber of Commerce Award 2010
- Medium firm of the Year - Finalist Accountancy Age 2010
- Excellence in Customer Service - Finalists National Customer Service Awards 2009
- Sunday Times Best Small Companies - Award 2009 - 2007
- Small firm of the Year - Accountancy Age 2007 & 2004 and finalists in 2010 and all years since 2003
- Deemed PCG accredited accountants and fully MSC compliant
We offer all clients:
Free face-to-face meetings. This is another unique service, only SJD offers free face to face meetings - tax is complicated and sometimes only a meeting will do.
Unlimited access to your own dedicated accountant. No call centres, no outsourcing, no automated call handling. Simply telephone, e-mail or meet your own dedicated accountant face to face.
Money back service guarantee. All your telephone calls and e-mails will be answered the same day or we will refund your monthly fee's.
Outstanding reputation. We have won more awards for customer service and accountancy excellence than any other firm in our market.
All inclusive low cost monthly package which includes completion of accounts, payroll bureau, dividends and corporation tax computations, personal taxation, free bookkeeping software, unlimited access to your accountant and all company returns.
All this for a fixed monthly fee of £110 plus VAT, which is one of the lowest prices in the market. And most importantly, in a recent survey 98% of our clients rated SJD as 'better than other accountants' - we are working hard to convince the other 2%!
If you have any question about contracting or would like any further advice please either contact your SJD Accountant or call our new client services helpdesk on 0500 152500 / 01442 275789 or email: michelle.turbutt@sjdaccountancy.com.
Appoint SJD Accountancy and never worry about your tax or accountancy affairs again!
You may also find the following pages, guides and case studies useful:
Take home pay calculator - How much could you be taking home
Contractor FAQ - All your frequently asked questions and their answers
First time Contracting or Freelancing? - A summary of the alternatives along with pros and cons
Choosing an accountant - For a full review
Step-by-step Guide to Contracting - Download a FREE copy of our guide
Limited or Umbrella? Can't decide? - We help you decide which is best for you
Guide to Contracting - All the best guides to contracting in one place
Expenses Guide - Know exactly what you can claim
Umbrella company guide - Everything you ever wanted to know about umbrella company services
IR35 Guide - A great plain English guide to IR35.
