Employers need to consider EBT settlement

Organisations running employee benefit trusts (EBTs) should consider whether the HM Revenue and Customs’ (HMRC) settlement opportunity is appropriate for their situation, advises KPMG.

The settlement opportunity allows for employers to pay the tax authority’s assessment of outstanding tax liabilities without the need for litigation.

Jayne Vaughan, tax partner at KPMG UK, said: “The threat of litigation is clearly not something to take lightly.

“However, employers with an EBT need to seriously consider whether the EBT settlement opportunity is something which is of interest to them, as this is a complex area of law and will require input from tax and legal specialists to determine the viability of the settlement.”

The legislation was introduced to counter where an EBT has been used as a tax-efficient alternative to cash bonuses, often using a sub-trust to provide long-term benefits to employees and their families. HMRC has stated that money paid to a sub-trust is taxable earnings of the employee at the time it is paid in.

KPMG has warned that some employers could find that they will struggle to recoup money from trustees and beneficiaries to pay the tax liabilities owed and end up paying the costs themselves. It also advised that there will be some EBTs that have been implemented correctly and so can withstand a litigation challenge.