Avoiding 50% tax: Cheap loans and EBTs.
When AccountingWEB is openly promoting tax abuse its time for serious preventative measures.
1) Disallow all payments to emplyee benefit trusts for corproation tax
2) Charge all payments to EBTs to PAYE when paid assuming employee's NIC and highest marginal rate of income tax apply.
That's my suggestion.
Problem solved.
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Richard
As a practising chartered accountant I’m surprised that you don’t already know that corporation tax relief in respect of contributions to EBTs is deferred until taxable benefits are actually paid to beneficiaries of an EBT. That came in after the Dextra case several years ago.
EBTs are usually set up for all or most of the employees of a company, including some very large ones. An EBT is a discaretionary trust. Assume a company makes a contribution of £1m to an EBT. Which employee or employees do you suggest be subject to PAYE on that contribution at that point ? That’s precisely why corporation tax relief is deferred. It is not available to the company until taxable benefits are paid out to employees in the future, which results in a far more symmetrical tax treatment.
EBTs were abused for several years by a number of advisors, in many cases to a riduculous extent. Some of those advisors are finding that, quite rightly, every single client of theirs is being investigated.
EBTs have a proper role to play in incentivising and retaining staff, and the deferral of CT relief has made a huge difference to the level of abuse which used to prevail.
I do know that
And I’m saying let’s deny it whether or not subsequently paid out
But just in case I say PAYE should be charged as if the payment were to a person on maximum rate tax with full NIC due
Why? Because I fundamentally disagree with your claim that EBT have any proper role to play
They’re an artifice that should be kicked into the long grass
What I suggest would do that
And cut your income at the same time. A double win
Richard
Whether you like or dislike EBTs is irrelevant.
I don’t see any prospect of benefits out of an EBT being taxable unless corporation tax relief is granted. Can’t see the House of Lords deeming that to be acceptable.
Are you saying that the trust itself should be made subject to PAYE and NIC on the contribution ? You will have to explain to me how that would possibly work. The trust (strictly speaking the trustees) is excluded from any benefit for itself from an EBT, so it would be impossible to tax it on the benefit. The House of Lords won’t agree to that one either.
Rupert
I think you’re having some problems with how the law works
It is made by Parliament. If Parliament says it is taxable it is. The House of Lords (which no longer exists for these purposes) can do nothing about it.
If the intent is to charge tax in one case and deny it in another – so be it.
Can a trust be charged to income tax by withholding at source? Of course it can. The law is changed to say so.
Please use a little imagination.
Of course what I suggest is unlikely – it was tongue in cheek – but the point is serious – this sort of pernicious and unjustified tax abuse has to stop. I am showing it just takes will and imagination to do so
Richard
Richard
I don’t disagree with you (for once) but on the basis that the law has already been changed to defer and potentially remove corporation tax relief on contributions to EBTs I think you’ve got as much chance of seeing your desired change go through Parliament as Labour has of winning the next general election.
Thanks for bringing the article in question to my attention Richard.
I’ve noticed EBTs being promoted more widely over the last year – almost back to the levels pre Dextra. Indeed on the TaxBuzz blog I recently attacked some partisan promotional material re EBTs that was being endorsed by an otherwise reputable accountancy grouping. I put it down to naivety on their part.
As regards the article on AccountingWeb I added a detailed comment and offered a contrary view to help those accountants who want to ‘avoid’ feeling that they need to be talking to their clients about such schemes.
I was then attacked by an anonymous contributor who thinks more people would want to use EBTs if only they were presented in a more ‘balance’d way. I had said that only 1 in 10 go ahead once they understand what is really involved and all the hoops through which they will need to jump.
I then dissected key elements of the reply and await further developments.
I seem to be making it my mission to counter the nonsense that is written suggesting that accountants could be negligent if they fail to tell clients about avoidance schemes. Indeed I firmly believe that the contrary is true. All professionally qualified accountants are expected to comply with the five fundamental ethical principles and it’s clear to me that advising on complex schemes they don’t really understand would be a clear breach of at least 3 of those principles.
[…] drew attention to AccountingWEB’s piece on Employee Benefit Trusts the other […]