HM Revenue & Customs (HMRC) has offered employers who have used Employee Benefit trusts ('EBT'), and similar arrangements, the opportunity to resolve outstanding enquiries in a number of ways. The first of these closed 31 July 2015.

New legislation designed to tackle "disguised remuneration" paid via employment related trusts was introduced in the Finance (No. 3) Bill 2011. 

  • A new Part 7A in Income Tax (Earnings and Pensions) Act 2003 (ITEPA) takes effect from 6 April 2011 but may apply to transactions that took place on and after 9 December 2010.

HMRC is inviting employers, companies and other users of EBT type arrangements to settle without recourse to litigation.

  • The objective is to minimise costs to both customers and HMRC. 
  • Any settlement will depend on the facts of the case, in particular whether the contributions to the trust have a link to employment or not.


The terms of the settlement offer will vary depending on whether HMRC considers that contributions paid into an EBT and the resultant financial benefits accruing to an individual have a link to an employment.

1. If the settlement is reached before a relevant step under the disguised remuneration legislation is taken:

a. recovery of outstanding PAYE and Class 1 National Insurance contributions (Earnings Basis) on contributions to the trust, with a corresponding Corporation Tax deduction where permitted under the appropriate Corporation Tax assessing provisions

b. the settlement will be an agreement for the purposes of paragraph 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 provided that the sums due under the settlement have been paid

c. where a benefit-in-kind charge has arisen in connection with the amount that has been contributed (for example on a beneficial loan), the settlement terms will give credit for the benefit-in-kind charge provided that the tax and National Insurance contributions has been accounted for

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

a. where a tax and National Insurance contribution charge arises as a consequence of a relevant step and the relevant step relates to an amount contributed to the trust before 6 April 2011, HMRC will not pursue recovery of PAYE and National Insurance contributions on that same amount for the earlier period

b. where the relevant step does not account for the whole of the amount contributed to the trust before 6 April 2011, HMRC will continue to 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

c. where a benefit-in-kind charge has arisen on amounts (for example on beneficial loans) for periods before the charge under Part 7A arises, HMRC will not give credit for the benefit-in-kind charge

EBTs where there is no link with employment

In situations where HMRC consider there is no link to employment (anticipated to be a minority of cases):

  • HMRC will deny a Corporation Tax deduction
  • amounts will not be subject to PAYE and National Insurance contributions at the point HMRC deny the Corporation Tax deduction
  • however, this will not prevent a subsequent tax charge under section 62 of ITEPA or new Part 7A from applying at some point in the future if a later taxable event happens
  • if a subsequent tax charge does arise, provided one is due, a Corporation Tax deduction will be permitted at that time

Other issues

  • HMRC will write to all employers or companies who have open EBT enquiries before the end of August 2011 to invite discussion about potential settlements.
  • Interest will apply.
  • The settlements will take into account all taxes including IHT and non-resident charges set out in Revenue and Customs Brief 18/11.

HMRC will continue to enquire into open EBT cases and may open further enquiries during this period including seeking further information.

Where HMRC is unable to agree settlement proposals with employers or companies then they will, as appropriate, continue to progress cases within the terms of the published Litigation and Settlement Strategy, and the new legislation will apply to continuing EBTs, and funds held in them.

If employers or companies do not respond by 31 December 2011, HMRC will assume that they are not interested in engaging with them and will look to progress enquiries formally.

This was replaced by the NewEBTSO from July 2015 and the Disguised remuneration final settlement opportunity from Novembr 2017.