Employers have until 31 July to settle their use of EBTs, which were offshore trusts widely used to reduce employees national insurance liability.
Moore Stephens said that if companies that used the schemes fail to settle then litigation will certainly follow, as HMRC has previously warned that those who fail to reach a settlement before 31 July will be brought before a tax tribunal “as quickly as possible”.
Concern
Dominic Arnold, partner and head of tax investigation and disputes at Moore Stephens, said: “This deadline is fast approaching, and thousands of companies are yet to settle.
“There is a concern that some companies will miss this opportunity to settle on favourable terms. Although HMRC will continue to seek resolution with EBT users after 31 July, it will not do so on the full EBTSO terms.
“Whilst some promoters of EBTs are actively addressing the threat of litigation, others in my experience are not.
“HMRC is playing its cards close to its chest regarding the fine detail of the settlement terms it will offer to employers after 31 July 2015. What is certain is that the settlement terms HMRC offers after the deadline has passed will be far less generous, and if cases go to tribunal HMRC will look to recover as much as possible.”
Typically, an EBT would function by an employer depositing money such as wages and bonuses in offshore trusts of which employees were the beneficiaries. The trusts would then typically grant low tax or tax free loans to the employee.
A number of high profile companies used EBTs before the rules governing them were changed in late 2010, including investment banks and football clubs.
Other uses of the trusts included owner managed businesses looking for tax efficient ways of taking money out of their business.
Arnold said EBT users may also face Accelerated Payment Notices from HMRC in the coming months, forcing them to pay up front the disputed liabilities in respect of the EBT.
