People are resorting to new tax avoidance planning in order to try and avoid the effects of planned legislation to combat abuse of EBTs, according to HMRC in its latest Spotlight.

Spotlight 11: Avoiding income tax on pay was published on 3 March 2011. HMRC is aware that people who have used employee benefit trusts (EBTs) to avoid tax on employment income are being targeted with products designed to shelter funds in current schemes from the effect of planned legislation designed to curtail disguised remuneration via trusts.

The new products rely on the availability of credit for loan repayments made before 6 April 2012. HMRC holds the view that these arrangements do not succeed. Even if they did HMRC would still challenge them as delivering remuneration which should have been subject to PAYE from first principles.

Subject to parliamentary approval, the new legislation will be effective from 6 April 2011 and some aspects of the proposed new law will apply from 9 December 2010. These changes are designed to prevent the avoidance of PAYE and national insurance contributions on employment income.

External links: HMRC Spotlights