Umbrella company contractors need to be aware that HMRC is going to clamp down hard on employment benefit trust schemes. EBTS’s are now considered by the government to be a form of disguised remuneration.
Even in your umbrella company says it provides a fully compliant, safe and secure HMRC approved scheme which lets you keep more than 90% of net income, be warned. That claim is not only false, it is now illegal.
EBTs has been popular with high-earning freelancers. Even footballers and entertainers have made use of them. The way they work is to divert some types of regular income into “loans” which attract minimal or zero tax rates. By closing this loophole, the government hopes to rake in additional revenue of £500 million each year.
A small number of large corporations and few individuals may be compliant with HMRC’s new rules but the Revenue estimates that, as from December 9th last year, more than 50,000 contractors will not. Unlike the majority of tax schemes, this one does not come with a cut-off date. This means that schemes in existence prior to December 9th may still be included in the new legislation.
Tax advisers believe that HMRC will group together schemes that paid out loans and benefits before December 9th and beneficiaries may be left facing an investigation lottery depending on the set up and operation of their trust.
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