BOSSES OFFERED EBT SETTLEMENT OPPORTUNITY

HMRC are offering firms that have used employee benefit trusts (EBTs) and similar arrangements the opportunity to resolve outstanding enquiries without recourse to litigation. According to the Revenue, employers and companies who are concerned with how their arrangements will be affected by the new disguised remuneration legislation in schedule 2 to the Finance Bill can use the EBT opportunity to obtain certainty about tax liabilities.

Businesses willing to reach a financial settlement with the taxman will be invited to discuss how it might be achieved. Arrangements will depend on the facts of the case. Where there is a link to the employment, if the settlement is reached before a relevant step under the disguised remuneration legislation is taken:

• recovery of outstanding PAYE and Class 1 National Insurance (NI) contributions (Earnings Basis) on contributions to the trust, with a corresponding corporation tax deduction where permitted;

• the settlement will be an agreement for the purposes of para 58 of the Finance (No 3) Bill 2011 and the employee will be entitled to a corresponding credit against the value of a subsequent relevant step under part 7A of ITEPA;

• where a benefit-in-kind charge has arisen in connection with the amount that has been contributed for example, on a beneficial loan credit will be given for the charge.

If a relevant step under the disguised remuneration legislation is taken before a settlement has been reached:

• where tax and NI arise as a consequence of a relevant step which relates to an amount contributed to the trust before 6 April 2011, HMRC will not pursue recovery of PAYE and NI on that same amount for the earlier period;

• where the relevant step does not account for the whole of the amount contributed to the trust before 6 April 2011, the Revenue will be willing to settle the outstanding amount on the basis described above, giving rise to a corresponding settlement credit under part 7A for subsequent relevant steps

• no credit will be given for a benefit-in-kind charge which has arisen on amounts for periods before the charge under part 7A arises.

Where there is no link with employment, HMRC will refuse a corporation tax deduction and amounts will not be subject to PAYE and NI at the point at which the Revenue denies the deduction.

This will not prevent a subsequent tax charge under ITEPA 2003, s 62 of or new part 7A from applying in future, if a later taxable event occurs. If a subsequent tax charge arises, a corporation tax deduction will be permitted. Interest will be charged on duties in the normal way, and all relevant duties will be taken into account.

HMRC intend to write before the end of August to all employers and companies with open EBT enquiries, to invite discussion about potential settlements. The department says arrangements are in place to ensure a consistent approach is taken. If firms do not respond to the opportunity by 31 December, the taxman will deal with enquiries formally.

Where HMRC are unable to agree settlement proposals, they will, as appropriate, progress cases within the terms of the litigation and settlement strategy; the new legislation will apply to continuing employee benefit trusts and funds held in them.

TAX CASE: FERRARI WAS NOT A BENEFIT

The taxpayer, Michael Golding, was a director of Huntington Antiques Ltd. During an enquiry into the tax affairs of that company, HMRC became aware that that company owned two cars.

The department concluded that, as the taxpayer was a director-employee of the company, the cars were made available to him by reason of his employment. The Revenue raised assessments, which included car benefit in respect of two cars, a BMW and a Ferrari. The taxpayer appealed.

He explained that the Ferrari had been bought by the company for use on tracks or circuits only and could not lawfully be used on the public highway. Its sole use was as a marketing tool to entertain clients. However, it was decided to sell the car in 2001, although no actual sale took place until 2005.

HMRC argued that the Ferrari was available to the taxpayer by reason of his employment.

After surveying the evidence, the First-tier Tribunal decided that the taxpayer had made no personal use of the Ferrari and that it was only used as a marketing tool. It would be artificial to regard the car, in those circumstances, as being made available to the taxpayer.

The taxpayers appeal was allowed.

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