For many years, employers in the UK, small and large, used contributions to Employee Benefit Trusts (EBT) and Employer Finance Retirement Benefit Schemes (EFRBS) as a means of incentivising and rewarding employees and directors. It was common for the trustees of EBTs and EFRBS to grant loans to beneficiary employees with the result that cash was available to them without payroll taxes being suffered. The employer often claimed a corporation tax deduction for the contributions made.

HMRC has challenged these arrangements over many years and believes PAYE and NIC should have been operated by employers when making EBT contributions, or at least at the point funds were allocated to a personalised sub-trust or sub-fund for an individual and their family.

Until July 2015, HMRC offered a Settlement Opportunity whereby companies (or individual employees) could settle the tax liabilities HMRC believed arose from the arrangements – during this period HMRC also took the view that PAYE & NIC should have been accounted for in relation to EFRBS on broadly the same basis as EBTs.

The current position

There have been three key developments since the Settlement Opportunity closed on 31 July 2015. 

Firstly, HMRC finally achieved success in the high profile and long running Murray Holdings (Rangers Football Club) EBT case at the Court of Session in November 2015.  The decision was that PAYE & NIC should have been accounted for on contributions to EBTs as the contributions were “ a mere re-direction of earnings” but an appeal has been lodged with the Supreme Court and, therefore, the decision is not yet final.

Secondly, the 2016 Budget announced a new “earnings” charge on pre-9 December 2010 loans from EBTs & EFRBS which means, broadly, that any EBT or EFRBS loans that have not otherwise been taxed by 5 April 2019 (typically by way of settlement with HMRC) will become subject to PAYE and NIC at that point. HMRC have also indicated that they intend to bring in legislation to allow them to collect the tax due from the individuals who have outstanding loans rather than the employers.  Whilst we are aware that certain promoters are offering schemes now to rid taxpayers of loans in a “tax efficient manner”, such schemes will of course be subject to intense scrutiny by HMRC and may lead to additional liabilities as opposed to providing a solution. 

Finally, Accelerated Payment Notices (APNs) have become the norm, removing some or all of the cashflow advantage that arose from the planning in the first place.

Although the Settlement Opportunities have now passed, HMRC remain committed to settling cases, albeit on slightly different terms than before.  In view of the new 2019 charge in particular, more and more taxpayers are now seeking to settle their EBT and EFRBS arrangements with HMRC.

EFRBS settlements

HMRC will accept EFRBS settlements now on the following broad terms:

  • Corporation tax disallowance in the year of the contribution, with a deduction instead available in the year settlement is agreed
  • Distribution from the EBT now (for example a cash distribution or loan write off) subject to PAYE and NIC in the current accounting period
  • Typically no Inheritance Tax liabilities arise (unlike under the Settlement Opportunity)

Issues that will need to be considered in any settlement case include the ability of the company to make use of the corporation tax deduction in the current period, and any potential benefit in kind implications for the beneficiaries if they do not make good to the employer the PAYE paid in settlement. 

EBT settlements

The terms of settlement now are broadly as they were under the EBT Settlement Opportunity, that is:

  • PAYE and NIC is due for the year of the contributions
  • A corporation tax deduction becomes available in that period
  • Inheritance Tax liabilities may arise upon winding up of the Trust now
  • Benefit in kind liabilities for employees not making good the PAYE to their employer if within normal time limits

In September 2016 HMRC published guidance comparing EBT settlements now to under the Settlement Opportunity, the key difference being that contributions made in years which HMRC have subsequently failed to “protect” by issuing PAYE and NIC assessments must nonetheless by subject to tax for full settlement to be available.  Furthermore, corporation tax deductions for contributions are now only available if the year of contribution remains capable of amendment under normal rules.

In all cases time to pay arrangements remain available and substandard offers may be accepted by HMRC in certain situations.


Despite changes to the proposed terms of settlement, we are finding that settlement of EBT and EFRBS arrangements continues to prove attractive to taxpayers, particularly those with outstanding loans that will be subject to tax in 2019 in any event.

If you wish to discuss EBT or EFRBS settlements in more detail then please contact us or speak to a member of our team.