HMRC is offering employers who have utilised Employee Benefit Trusts (EBT) planning schemes the opportunity to resolve outstanding enquiries.

Such arrangements seek to minimise the Income Tax and National Insurance charge on remuneration to employees and directors whilst also generating a claim for Corporation Tax deductions for payments into the trust. Finance (No. 3) Bill 2011 published on 31 March 2011 introduces new legislation which, in HMRC's opinion, puts beyond doubt that such arrangements or schemes do not work.

The disguised remuneration legislation, once enacted, will have effect from 6 April 2011 and, in some cases, will apply to transactions that took place on and after 9 December 2010. HMRC intend also to make corresponding Regulations to deal with National Insurance contributions.

HMRC is now inviting employers, companies and other users of these arrangements to settle without recourse to litigation. There is no deadline for the incentive but if employers or companies do not respond by 31 December 2011, HMRC will assume that they are not interested in engaging in this process and will look to progress enquiries formally.

Employers or companies willing to reach a financial settlement with HMRC will be invited to discuss how this might be achieved. 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.

In situations where HMRC consider there is a link to employment, the terms on which they will be prepared to settle will depend on whether there has already been a ‘relevant step’ under the new disguised remuneration legislation in Schedule 2 to Finance (No. 3) Bill 2011.

Settlements reached will take into account all relevant duties and interest will be charged in the normal way.

HMRC have stated that resolving these enquiries will depend on examination of the facts of individual cases. Before the end of August 2011, HMRC will therefore write to all employers or companies who have open EBT enquiries to invite discussion about potential settlements. Arrangements have also been put in place to ensure that a consistent approach is taken to agreeing settlements under this disclosure initiative.

HMRC have made it clear that they will continue to enquire into open EBT cases and may open further enquiries during this period including seeking further information.

For more information on the terms on which HMRC is prepared to settle and other practical issues arising out of this initiative visit: http://www.hmrc.gov.uk/employers/employee-benefit-trusts.htm