Clients reminded of EBT & EFRBS Settlement Deadline

Posted On: 23 May 2018

Clients who used EBTs, ERTs, EFRBS or similar structures only have until 31 May 2018 to register their interest in settling their tax position with HMRC. If not, they face losing the settlement terms currently on offer and further strong action from HMRC.

Currently, settlements can be negotiated for various users of “Disguised Remuneration” (DR) schemes, including employers (typically companies wanting to resolve matters for both the company and its directors/employees) and employees or ex-employees (including directors of companies which may have been liquidated or become dormant). HMRC will seek to charge the full amount of PAYE/NIC due (plus Late Payment Interest), but a number of key technical issues also need to be considered as part of any settlement, including: –

• Corporation Tax relief;
• the requirement to ‘make good’;
• overpayment relief;
• “protected” and “unprotected” years;
• Relief for tax paid;
• the interaction with potential future Part 7A charges; and
• clearance for the purposes of the 2019 DR Loan Charge legislation.

Some clients also face important IHT issues (see below) and penalties may be being argued/levied by HMRC.

What if a client decides not to register for the DR settlement opportunity?

HMRC has already started to issue Follower Notices (FNs) to users of DR schemes based on last year’s Supreme Court decision in the Rangers FC case. The FNs are regularly being accompanied by Accelerated Payment Notices (APNs) to ensure that payment of the disputed tax/NIC is quickly pursued and collected. HMRC must complete its FN exercise by July 2018 so further action after 31 May 2018 seems inevitable. At that point, the settlement opportunity will no longer be available and clients face significant penalties for not complying with a FN.

A large number of DR schemes involve non-UK trusts. Consequently, the Requirement to Correct (RTC) obligation needs to be considered. UK taxpayers who fail to correct any offshore matters by 30 September 2018 face new Failure To Correct (FTC) sanctions, including a minimum penalty of 100% of the tax owed. Whilst the RTC does not apply to PAYE, it does cover Income Tax, Capital Gains Tax and, importantly, Inheritance Tax (IHT). So, historic IHT issues linked to both UK and non-UK resident trusts (e.g. the 10-year charges linked to DR trust structures) could potentially fall within the RTC.

The new 2019 DR Loan Charge applies to loans from DR schemes which are still outstanding as at 5 April 2019. If settlement hasn’t been agreed with HMRC and the loans have not been cleared or written-off by then, there is a reporting requirement and a new tax charge. Paying this charge does not clear or settle the historic tax position.

How can Lancaster Knox help?

Hopefully, this e-mail is a useful reminder of the issues you need to discuss with any existing or new clients who approach you for advice. That said, there is no substitute for expert help and Lancaster Knox specialises in DR settlement work. We can also help clients secure funding for a settlement.

HMRC is willing to consider Time To Pay (TTP) arrangements in DR settlement cases. However, the instalment terms and/or periods allowed for payment can be punitive or unrealistic. Forward interest is also charged. Lancaster Knox has worked with its sister business, Knox Capital Solutions, to secure funders who are willing to lend clients the monies they need to conclude matters with HMRC. Whilst the terms are client specific, they are often more flexible and manageable than those being offered by HMRC.

Please contact Lancaster Knox on 0203 757 5669 or via info@lancasterknox.com if you would like help with a DR settlement and/or an introduction to Knox Capital Solutions.