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EBT clampdown - Government updates disguised remuneration FAQs
Posted Jul 8, 2011
Earlier this week, the Government published a revised set of FAQs relating to draft legislation which put an end to the viability of employment benefit trust (EBT) schemes for contractors.
Background to the clampdown on EBTs
On 9th December 2010, the Government published draft anti-avoidance legislation to target intermediaries which provided 'disguised remuneration' to clients. Most of these schemes operated as EBTs.
The legislation will ensure that any benefits provided by EBTs in the future (such as loans paid to contractors) will be subject to income tax and National Insurance Contributions (NICs).
The Government expects the disguised remuneration clampdown to result in a £500m windfall for the Treasury.
The changes will come into force via an amendment to the Income Tax (Earnings and Pensions) Act 2003.
Although the legislation has yet to be receive Royal Assent (this is expected to take place over the summer), its provisions took effect from 6th April 2011.
In addition, anti-forestalling measures were put in place, which apply to loans and similar payments made between 9th December 2010 and 5th April 2011, as payments made between these dates would have been subject to the new regulations had they been made on or after 6th April 2011.
New FAQs to provide more clarity over scope of new rules
The updated FAQs (PDF link) aim to provide clearer guidance to what is a very complex piece of legislation.
They also provide more clarity on which type of scheme the legislation is aimed at. Employee share plans run in conjunction with EBTs, for example, were never meant to be caught within the scope of the new rules.
The subject of 'earmarking' is also discussed where it refers to the tax treatment of share options and other awards which are to be granted to members of such schemes.
You can read more background to the clampdown on EBT schemes here.
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