A scheme using Employee Benefit Trusts (EBTs) as a means of remunerating directors and staff whilst avoiding tax has been defeated by HMRC in a recent Supreme Court case.

Such schemes had been used by many employers to avoid PAYE and national insurance contributions (NICs) and involved complicated trust structures and “loans” to the employees. The Supreme Court judges have ruled that these loans were in substance employment earnings when payments were made to the trusts and are thus ineffective in avoiding PAYE and NICs.

The anti-avoidance rules have also been strengthened in the latest Finance Act with the intention of blocking the use of similar schemes including the transfer of the liabilities to the employee.

Many employers were awaiting this decision and must now decide whether or not to settle with HMRC for the outstanding tax due. If you have been involved in such schemes please contact us to discuss what action you now need to take.