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Employee Benefit Trust Scheme now illegal

Paystream News

Julian Ball

Wednesday 22nd Dec, 2010

On 9th December 2010, the Government issued for Consultation draft legislation primarily focused on employer-financed trusts often referred to as Employee Benefit Trust schemes (EBTs) The objective of the legislation is to prevent the avoidance or deferral of income tax and National Insurance Contributions (NICs) on employment income. This will have a significant impact on Service Providers, Umbrella companies and other intermediaries who use trusts or loans to pay contractors, with a view to avoiding or deferring payment of tax and NICs.

Legislation will be introduced in the Finance Bill 2011 which will take effect on and after 6th April 2011. In addition, anti-forestalling provisions will apply to the payment of overdue sums of tax and NICs between 9th December 2010 and 5th April 2011 where, if paid on or after 6th April, would have been caught by the legislation. This means that any contractors working under these types of EBTs should take urgent steps to switch to a fully compliant Umbrella company or Accounting Services provider, such as PayStream, as soon as possible, in order to avoid serious financial repercussions.

There are approximately 5,000 employers known to HMRC who currently use these schemes, employing in the region of 50,000 contractors. Amongst this number are Umbrella Companies. As the "employer" in the relationship, the Umbrella company will need to apply PAYE and NICs to the full amount of employment income and if it does not do this from 9th December 2010, it will risk having to repay any underpaid PAYE debts. Since PAYE debts may be substantial, this may force many Umbrella companies to close down, leaving the contractor without payment.

HMRC is committed to pursue those using these schemes, so it is more important than ever for agencies to ensure that their contractors are dealing with a service provider that takes compliance seriously. All PayStream's services are fully compliant and approved by Professional Passport, which is an independent professional membership organisation that works closely with a number of government departments and industry trade bodies in order to fully assess a provider's compliance across many aspects of legislation.
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