PBR could clamp down on benefit schemes

The government could target tax-avoiding benefit schemes in next week’s pre-Budget report (PBR), warns UHY Hacker Young.

The accounting group said it is very likely the government will begin taxing employee benefit trusts (EBTs) and employer funded benefit schemes (EFRBS), in a move that could effectively draw in tens of millions of pounds in additional revenue.

Introduced by the banks 10 years ago, both EBTs and EFRBS are widely used by all types of banks and building societies. Their popularity has also spread beyond the financial services industry and into other businesses across the UK.

EFRBS are viewed as more flexible than registered pension schemes, offering broader investment choices and no limit on tax relief, while an EBT enables employers to reward bonuses by contributing directly into their staff’s trust.

HM Revenue & Customs (HMRC) recently announced that it would clamp down on schemes that shield bonuses from taxes.

UHY Hacker Young predicts that the government will introduce further legislation in the pre-budget report by starting to tax these schemes.

“These schemes have become hugely popular, so any clampdown would yield tens of millions of additional tax. It would also be politically expedient, as the government could present it as an attack on the excessive bonus culture in banks,” said Roy Maugham, tax partner at UHY Hacker Young.

“HMRC recently announced that it thinks these schemes are ineffective in a bid to convince employers not to use them, but the tax planning firms promoting these schemes take a different view of the law, so HMRC’s opinion has not deterred their use. Anti-avoidance measures in the Pre-Budget Report are therefore quite likely.”