What is the current position with EBT schemes? How does the loan charge apply? What are the current settlement options?

This is a freeview 'At a glance' guide to EBT schemes: where are we now?

Taxpayers who have outstanding loans from Employee Benefit Trust’s (EBTs) which were taken out after December 2010 must have either paid the loan charge or reached a settlement with HMRC by 30 September 2020.

At a glance

  • In April 2019 the Disguised Remuneration loan charge was introduced for all EBT loans where no settlement had been agreed with HMRC. It originally applied to all outstanding loans taken since 1999 and the deadline for declaring loans and paying the charge was 30 September 2019.
  • A Review was undertaken into the loan charge in late 2019 which resulted in:
    • Pre 9 December 2010 loans and pre-April 2016 loans where the avoidance scheme use was fully disclosed to HMRC and HMRC did not take any action, for example, by opening an enquiry, were excluded from the charge.
    • Taxpayers could elect to spread the amount of their outstanding loan balance across three tax years: 2018 to 2019, 2019 to 2020 and 2020 to 2021.
    • The deadline for declaring loans and paying the charge was extended to 30 September 2020 with no interest and penalties.
  • Loans subject to the charge are charged to Income Tax and National Insurance Contributions (NICs) and the only way to avoid it was to repay the loans in full before 6 April 2019 or reach a settlement with HMRC by 30 September 2020. Settlements can still be reached after that date but do not prevent the loan charge from applying.
  • On 7 November 2017 HMRC issued details of a Settlement opportunity for users of disguised remuneration schemes including EBTs. This settlement opportunity is now closed. 
    • The terms were available to anyone who registered their interest by April 2019. Settlements must have been concluded by 30 September 2020 to avoid the loan charge. 
  • In August 2020 HMRC issued details of a new settlement opportunity for taxpayers with loans not subject to the loan charge. Further guidance was issued in October 2020 for taxpayers with loans subject to the loan charge who had not settled by 30 September 2020 under the 2017 settlement terms. See Disguised remuneration 2020 settlement opportunity.

The loan charge was brought in following conclusion of the long-running Rangers case, which was decided by the Supreme Court who agreed with HMRC that loans made to employees under the club's EBT loan scheme were in fact remuneration and so subject to tax and NICs.

EBT cases and opinions

In Asertis Limited v Mr Dale Heathcote and Servico Contract Upholstery Limited [2022] EWHC 2498 the High Court found that a company director was not liable to repay contributions to an EBT after his company went into liquidation. They were properly authorised and justifiable as remuneration.

In Bhaur & Ors v Equity First Trustees (Nevis) Ltd & Ors [2022] EWCA (Civ) 534  the Court of Appeal refused to set aside an Employee Benefit Trust structure on the grounds of mistake despite attempts by the offshore trustees to give 90% of the trust value to the NSPCC as the default beneficiary. It was an artificial tax avoidance scheme which Mr Bhaur decided to enter into despite knowing the risk of HMRC challenge.

  • Mr Bhaur knew that the scheme could be challenged by HMRC and, at the very least, that there was a risk that the financial consequences of the scheme failing not be entirely neutral and might be worse than the potential inheritance tax which could have applied without the scheme. He made a conscious decision to implement the scheme anyway.
  • The scheme was an entirely artificial tax avoidance scheme amounting to tax evasion. Whilst tax avoidance is not unlawful, artificial tax avoidance is a 'social evil' that puts an unfair burden on those who do not enter into it and this was a factor which weighed heavily against the granting of any relief.
  • Even on the basis that the Bhaur family were not complicit in the dishonesty of the scheme promoters, it would not be unjust or unconscionable to refuse equitable relief and to leave the consequences of the Appellants' mistaken belief uncorrected.

In Stephen Hoey v HMRC [2019] TC07292, the FTT held that discovery assessments on EBT loans which had been disclosed by the taxpayer were valid and HMRC could decide to transfer the tax due from the employer to the employee and the decision was upheld by the Upper Tribunal. The Court of Appeal agreed that no PAYE credit was available =. The courts had no jurisdiction to challenge HMRC’s discretion in not pursuing a deemed employer for PAYE and the appellant’s judicial review claim failed.

In Oco Ltd and Another v HMRCpayments from an EBT into sub-trusts were found to be earnings under the Ramsay principle. There was no possibility that the loans from the sub-trusts to employees would ever be repaid.

In HMRC v Root2 Tax Ltd, the Tribunal found that an employee reward scheme did meet the criteria for disclosure under DOTAS and should have been disclosed by the promoters. Whilst not specifically an EBT case, this is the first case to be heard which deals with non-disclosure under the DOTAS regulations and may be relevant to any additional planning which has been or will be undertaken in respect of EBT’s, if no disclosure has been made under DOTAS by the scheme promoters.

In Barker v Baxendale Walker Solicitors (a firm) & Ors [2017] EWCA Civ 2056,the Court of Appeal found that the solicitors advising on an EBT structure were negligent in not warning their clients that the scheme could fail. The court said that specific warnings should have been given about the significant risk that HMRC may interpret s.28 IHTA 1984 (regarding a transfer of shares into an EBT being exempt from IHT) differently to the advisers, causing the planning to fail. 

We have also had the first decisions of the GAAR Advisory Panel (GAP). Its first Opinion Notice, ‘Employee rewards using gold bullion was followed by two further opinions about similar arrangements. These considered the consequences of remunerating employees by means of gold bullion held in an Employee Benefit Trust.

  • The GAAR is structured in the form of a 'double-reasonable test': it only bites if the arrangements “cannot reasonably be regarded as a reasonable course of action”. 
  • Where the GAAR does apply, penalties of up to 60% of the counteracted tax can be levied over and above any penalties due under the normal rules.
  • In this case, the panel found that the GAAR did apply on the basis that the provision of bullion to employees is not a reasonable course of action.

A later GAAR panel opinion involving an EBT used in Inheritance Tax (IHT) planning also failed the double reasonableness test. The judge said the trust was 'dressed up' and 'camouflaged' as a trust for the benefit of employees. It looked and operated like a family investment trust and the motive for setting up the trust was not to benefit employees but to avoid IHT.


Given that it is now impossible to re-extract funds following a repayment of loans without triggering a tax and NIC charge under the disguised remuneration rules, the options for EBT users are now extremely limited. The choice would seem to be pay the loan charge then consider settling with HMRC, paying all taxes and NIC. Those with loans not caught by the charge have a different choice, settle with HMRC or wait for their case or a lead case for their scheme to go to the Tribunal which could take many years. Up until Spring 2022 HMRC applied a light touch approach to unpaid loan charges presumably due to the COVID-19 pandemic. From Summer 2022 HMRC began issuing assessments to taxpayers who they believed should have declared and paid the loan charge and who either hadn't done so or had declared what HMRC consider to be an incorrect amount. Taxpayers who receive an assessment have 30 days to appeal or they must pay the amounts assessed, otherwise, HMRC may commence debt collection proceedings and interest and penalties may also be charged. 

Useful guides on this topic

Disguised remuneration loan charge (subscriber guide)
What is disguised remuneration? What is the loan charge? When does the loan charge apply? Will the loan charge affect me?

FAQs for Disguised Remuneration Settlements 
Can I just repay my loans? Which is cheaper: the loan charge or settling? How much will it cost to settle? And many other FAQs

Disguised remuneration 2020 settlement opportunity
What is HMRC's position on disguised remuneration loans where settlement was not reached by 30 September 2020? Can a settlement still be reached?

Disguised Remuneration 2017 settlement opportunity 
An overview of the 2017 settlement opportunity for those involved in disguised remuneration schemes. What are the potential liabilities? What is the settlement process?

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