David Jetuah, Accountancy Age, Monday 28 June 2010 at 08:52:00

Sweeping crackdown offshore trusts and vehicles which the taxman believes arebeing used to sidestep income tax and national insurance will includeemployer-financed benefit schemes


The coalition government has adopted a Labour measure to foil tax avoidancethrough offshore trusts and vehicles, but has also gone a step further bybringing retirement benefit schemes into the spotlight.

The move also reinforces HMRC's crackdown on the football industry, reportedby Accountancy Age, because clubs use the benefit schemes to pay players,advisers say.

The March 2010 Budget announced action to tackle arrangements using trustsand other vehicles to reward employees which seek to avoid, defer or reduceliabilities of employees and directors to income tax and NICs or to avoidrestrictions on pensions tax relief.

"Legislation will take effect from April 2011. The Government confirms thatEmployer Financed Retirement Benefit Schemes (EFRBS) are within the scope ofthis measure," the Budget Red Book said.

In terms of pensions, advisers say the taxman wants to class the EFRBS aspart of your employment income and should therefore be taxed.

However, doubts have been raised about how this will be achieved.

Sarah Pickering a managing director at Alvarez & Marsal Taxand said:

"They know that there is money leaking but stopping it is very difficult.They don't truly know what's going and it could potentially open more loopholesthan it closes."

Pickering also questioned the government opting for a general rather thanfocused approach to the issue

"HMRC is trying to have a really broad but tax law in the UK is made byspecific legislation."

Cathy Corns: "HMRC has said they are going to do this but what we don't knowis how.

"I can't see how you are going to charge NIC on employers contributions' to apension scheme."

Companies are also in line for a corporation tax deduction when they financean EFRB.

Alastair Kendrick, tax partner at Mazars warned that the clampdown may putoff smaller companies because of the advisory fees associated with setting upthe schemes and having a trustee to manage it.

But EFRBS would still be attractive to businesses with deeper pockets untilthe new legislation came in, he said.

"For small companies with a small bonus pot the EFRBS may not be an option,but for those with deeper pockets they may think that it's still worth it."

An HMRC spokesperson said the taxman could not comment on individual businesssectors, but did reinforce a commitment to foil tax avoidance in this area.

"The Government will be taking action to prevent efforts to avoid tax andNational Insurance Contributions (NICs) on earnings provided through the

use of trusts and other vehicles."

"Employers and employees are entering into arrangements using trusts andother vehicles that seek to avoid, defer or reduce liabilities to income tax andNICs on earnings or that seek to avoid restrictions on pensions tax relief."

In some cases these arrangements seek to rely on the use of complexintermediary structures, some of which were offshore, the spokesman added.

"The Government is considering options for tackling these arrangements,including those which seek to avoid the restrictions on tax relief for pensionschemes, and intends to introduce legislation in due course to take effect from6 April 2011," the spokesman said.