Employee benefits trusts closed to tax avoidance

A tribunal has closed a tax avoidance scheme which routed the profits of a tax advisory business through employee benefits trusts (EBTs). 

HM Revenue and Customs (HMRC) challenged tax deductions of almost £9 million which tax advisor John Dryburgh’s organisations, Scotts Atlantic Management and Scotts Film Management paid into EBTs.

Employee benefit trusts are tax-efficient discretionary trusts designed to hold employee assets, which can include employer shares and be held in the UK or offshore.

The case related to whether the value contributed to employee benefit trusts was deductible for corporation tax purposes and whether Dryburgh was chargeable to income tax on benefits made available to him.

The payments came out of profits earned by selling tax avoidance film schemes.

The tax avoidance involved trying to extract profits from companies, while also securing corporation tax deductions.

Employers paid money into an EBT and claimed the tax deductions. The EBT gave undervalued shares in a new company, causing a loss to the employer.

The tribunal decision, which denied the claimed deduction, has protected £2.4 million of tax.

The tribunal said: “There is no doubt that Dryburgh not only lied to the tribunal in a material way, but he appeared also to have fabricated evidence, forged documents and thrown away a memory stick in order to destroy evidence.”

David Gauke, the exchequer secretary to the Treasury, added: “This scheme, like so many others, was not worth buying into.

“The government has made almost £1 billion available to HMRC to tackle the issues of avoidance and evasion and to ensure that the minority who try to avoid their responsibilities pay the tax due.

“HMRC will always challenge this type of planning and the tribunal decision should send a clear message to anyone thinking they can get away with tax dodging.

“HMRC will pursue you and you will have to pay the tax due as well as interest, on top of the promoter’s fees.”