Wylie & Bisset warns Loan Charge Legislation could bring financial woe for EBT and EFRB participants
Wylie & Bisset is warning anyone who participated in Employee Benefit Trusts (EBTs) and Employer Funded Retirement Benefit Schemes (EFRBs) that the new Tax Year could bring unprecedented financial woe as the new Loan Charge Legislation comes into force.
Traditionally such schemes remunerated key individuals via a series of loans under preferred terms making the likelihood of repayment minimal. As loans replaced what would otherwise be taxable income, significant tax savings in both Income Tax and NIC accrued.
The Loan Charge Legislation seeks to remedy this by placing tax charges where loans remain outstanding as at 5 April 2019. With the power to bring the last 20 years into consideration and company insolvency or dissolution being no barrier to subsequent tax recovery on individuals, there are some who could find themselves on the cliff-edge financially.
Some may have sought settlement with HMRC and others may have repaid the loans to avoid the charge. Anyone who has not taken any remedial action needs to assess what their liabilities may be as a matter of urgency to determine the best course of action for them.
Donald McKinnon, managing partner and insolvency practitioner at Wylie & Bisset, said: “The 2019 Loan Charge Legislation follows the Supreme Court’s decision in the case of RFC 2012 plc (in liquidation) – formerly The Rangers Football Club PLC – which upheld HMRC’s case against the club for the use of disguised remuneration.
“There is a real desire by HMRC to bring these types of schemes to an end and whilst the Rangers case was high profile, the rules are far wider reaching than many believe. HMRC estimates that the new legislation will affect some 50,000 individuals and will raise £3.2 billion for the Exchequer, a target HMRC will be desperate to reign in.
“At Wylie & Bisset our tax team has been urging potentially affected individuals to engage with HMRC. What I would say to those who have not yet considered their position is come and speak with our experienced team and we can review with you what your next steps should be. Insolvency should not be ruled out as a means of dealing with the potential financial abyss.”