BIM44500 - Specific deductions: Employee benefit trusts: Contents

Some EBTs are set up to provide employees and directors with specific kinds of benefits such as shares in their employing company, pensions and other retirement benefits, accident benefits or healthcare benefits. However general purpose EBTs have increasingly been used for avoidance purposes, with the aim of providing employees and directors with benefits in ways that aim to minimise or avoid liability to income tax (and PAYE) and employers’ National Insurance Contributions (NICs).

In many cases the main risk may relate to income tax under PAYE and NICs due on amounts paid out of the EBT, rather than the availability of a Corporation Tax deduction (at some time) for the employer’s contribution. It is therefore important that staff considering deductions for employers’ contributions liaise with employer compliance staff so that all aspects of the case are considered together.

There may also be Inheritance Tax consequences if a deduction for a contribution made by a close company to an EBT is disallowed or deferred in computing the company’s taxable profits. In these cases staff considering deductions for employers’ contributions should liaise with Capital Taxes (IHT), see BIM44550.

A full list of the contents of the guidance on deductions for employers’ contributions to Employee Benefit Trusts (EBTs) is shown below. The guidance is subdivided into three main sections:

• General Matters (BIM44501 - BIM44549);
• Deductions for employers’ contributions to general purpose EBTs (BIM44550 - BIM44574);
• Timing of deductions for employers’ contributions to general purpose EBTs (BIM44575 - BIM44640).

General Matters

General purpose EBTs - deductions for employers’ contributions

General purpose EBTs - timing of deductions for contributions