There have been a number of further significant developments with regard to Employment Benefit Arrangements (EBAs) and their treatment by the UK Government and HMRC which may affect trustees and beneficiaries.
The Rangers Case
Following the judgement given on 5 July 2017 in the Rangers Case, the Supreme Court resoundingly supported HMRC’s view that the sums paid into the EBT were a “redirection of employee’s earnings” that were not excluded from a charge to PAYE and NIC.
It is fully expected that in view of the broad nature of the judgement in support of HMRC’s view that the payments made to the EBT were the payment of “earnings” that HMRC will use the judgement to issue follower notices and accelerated payment notices (APNs) in respect of any open appeals connected with EBT arrangements that have not already been the subject of an APN.
Finance (No2) Act 2017
As part of the new legislation, there will be an obligation for both the Trustees and the Beneficiary/ies to report Loan Charge Information (LCI). This means that the former will need to provide information to the employing company no later than 10 days after 05/04/2019. This information will need to include full details of the beneficiary, terms, quantum and dates of the loan, national insurance and tax number, name of relevant arrangement and full details of the LCI. The employer company is then required to run this through its payroll and pay HMRC accordingly any tax due.
Beneficiaries will need to provide HMRC with the same full details as the Trustees provide to the employer company on the LCI by 01/11/2019.
Inheritance Tax (IHT)
It is expected that HMRC will contend that IHT charges will apply to EBAs. The nature of these charges will depend on a range of factors but there is a broad risk that significant additional costs will arise. In view of these potentially significant developments, we are strongly suggesting that trustees and beneficiaries seek UK tax advice to understand the potential impact of these developments/changes on your specific circumstances if you have not already done so.
By taking this advice you would be fully aware of your options so that you can make an informed decision as to any action you may wish to take. It is our understanding that to do nothing before 05/04/2019 will result in the maximum tax payable, hence the suggestion to take advice now. Following the ruling by the Supreme Court on the Rangers case in July, HMRC announced a new settlement opportunity, with further details provided on the website link below.