Employer-Financed Retirement Benefit Schemes (EFRBS) Settlement Opportunity

HMRC Offer EFRBS Settlement Opportunity

HMRC are giving employers the chance to settle open enquiries into the use of employer-financed retirement benefit schemes (EFRBS).

The settlement opportunity applies to contributions made by employers on or after 6 April 2006 and before 6 April 2011.

HMRC are of the belief that such arrangements do not work and therefore the settlements will avoid the need to take part in potentially costly litigation, thus benefiting both sides.

Firms will have until 31 December 2013 to enter into an agreement with HMRC.

Two Options Available

They will then be required to choose one of the following two options offered by HMRC:

i) No Corporation Tax deduction can be claimed on contributions to an EFRBS until the relevant benefits are paid out by the scheme, HMRC also expect PAYE and NICs will be due when they are paid out or

ii) A Corporation Tax deduction can be claimed when contributions are made to the EFRBS.  However, when those contributions are made they will be subject to PAYE and National Insurance contributions.

If an employer chooses to settle with HMRC by choosing one of these options they will have until 30 June 2014 to finalise the arrangement.

Interest & Penalties

Under option 1 interest will run from 9 months and 1 day from the end of the accounting period for which the additional amounts are due.

Under option 2 interest will run from 19 April following the end of the tax year in which allocations were made to the date the PAYE Income Tax and NIC is paid to HMRC.

HMRC have said that they will only seek penalties regarding any tax due in exceptional circumstances. However this is caveated by saying that every case will turn on its own facts.

Employer Financed Retirement Benefit Schemes: Going Down?

An Employer Financed Retirement Benefit Schemes (EFRBS) is a pension scheme that is unqualified.

Contributions into EFRBS are tax neutral, between employer and employee.

In recent times they have become increasingly popular with footballers and bank staff. They are routinely offered as part of contract negotiations. The trusts’ funds can be used to buy assets such as property and can for example, be very attractive to foreign players who intend to leave the UK when they finish their football careers.

An EFRBS can be used as part of a tax strategy for owner managed businesses also. However, the Treasury and HMRC has announced that they intend to shut the opportunity, and limit contributions to EFRBS to the same level of contributions that will be permitted to qualifying pension schemes.

For alternative tax planning methods or to talk about EFRBS why not give our Leeds office a call?