EFRBS are unapproved pension schemes that allow employers to make contributions on behalf of their employees and have been used extensively for several years. They have similarities to EBTs but the fundamental difference is that EFRBS are pension funds that need to earn a commercial return on their investments to provide for future pensions.
In common with EBTs, HMRC has taken a public stance that it believes PAYE & NIC should have been operated by employers when making EFRBS contributions or at the point funds were allocated to a personalised pension pot within an EFRBS for an individual.
Although HMRC’s view has not been endorsed by the tax tribunals or the courts it has nevertheless invited employers to voluntarily settle enquiries into EFRBS by either of the following options:
- Option 1 – the employer agrees to disclaim any corporation tax deduction for the EFRBS contribution and associated fees, in return for which HMRC agrees to close down its enquiries; or
- Option 2 – the employer agrees to account for PAYE & NIC on the amount contributed to the EFRBS, in return for which HMRC agrees that corporation tax deductions are allowed for the EFRBS contribution and associated costs and a further deduction is due for the additional PAYE & NIC costs being met and that the EFRBS can be wound up at this point if required.
There are further issues to consider if a beneficiary has borrowed money from an EFRBS and if the individual wishes to wind up the EFRBS there may be inheritance tax exit charges and further income tax for the individual when trust income is distributed.
We have extensive experience of dealing with EFRBS, associated HMRC enquires and voluntary settlements.