£2bn Tax Sitting Offshore

HMRC dragging their feet with offshore EBTs

During the early noughties the use of employee benefit trusts (EBTs) to pay high earners was popularised by thousands of companies, in fact 6,500 according to HMRC.

EBTs involve the employer company setting up a trust which then pays out a loan to the employees enabling the employee to minimise their tax liability. In a lot of cases the loan is not required to be repaid for a considerable length of time, in some cases not until 100 years has elapsed.

Needless to say HMRC took exception to this form of tax avoidance and in 2011 launched the EBT settlement opportunity, inviting employers, companies and other users of these arrangements to settle tax and NIC without recourse to litigation. This coincided with the disguised remuneration legislation, which took effect from 6 April 2011 and, in some cases, applied to transactions that took place on and after 9 December 2010.

Around 500 companies have taken up the opportunity to settle approximately £650 million in tax, with another 400 companies in discussions that the Revenue hope to secure an additional £300 million tax.

According to a recent report appearing in The Times, less than a quarter of the tax owed has been collected by HMRC and that around £2 billion is being held onto by the remaining 5,600 businesses that have not been enticed by the settlement opportunity. It is likely that these companies are sitting tight to see whether or not the Revenue are successful in litigating.

Last year Glasgow Rangers F.C successfully argued, before the first tier tax tribunal, that an EBT they used between 2001 – 2010 to pay players and staff a total of £47.65 million was not illegal. HMRC have however appealed against this decision to the upper tier tax tribunal.

What must be particularly galling to those contractors who unwittingly took part in offshore tax avoidance schemes, is that they continue to be pursued and pressured by HMRC for tax arrears whilst the big boys are permitted to watch from the sidelines for the time being. One can only surmise that the Revenue view such freelancers as soft targets whereas they should be treating all taxpayers equally.