Insolvency office-holder challenges to employee benefit trusts (EBTs)
Produced in partnership with Benn Richards and Martin Askew of Clarke Willmott LLP
Insolvency office-holder challenges to employee benefit trusts (EBTs)

The following Restructuring & Insolvency guidance note Produced in partnership with Benn Richards and Martin Askew of Clarke Willmott LLP provides comprehensive and up to date legal information covering:

  • Insolvency office-holder challenges to employee benefit trusts (EBTs)
  • What is an employee benefit trust scheme?
  • What are the types of EBT and how do they operate?
  • When, how and why are EBTs used?
  • What has the recent case law said about the use of EBTs?
  • Are EBTs relevant to directors’ disqualification proceedings?
  • Why are EBTs of interest to insolvency practitioners and what issues can arise?
  • Brexit

What is an employee benefit trust scheme?

An employee benefit trust (EBT) is used by many companies asa type of tax avoidance scheme, by which a company pays remuneration to its employees through certain types of employees’ remuneration trusts. Although those employees’ remuneration trusts can take many different forms—some examples of which are set out below—the most common example of an employees’ remuneration trust, is an EBT. There are other purposes of using an EBT other than tax avoidance.

For further reading on EBTs, see: Disguised remuneration and EBTs—overview and Practice Note: What is an employee benefit trust?

One of the main purposes of an EBT—in the employer paying remuneration to the employee via an EBT—is to maximize the sum received by the employee by enabling the employer and employee to avoid any liability asto income tax and Class 1 national insurance (NIC). It should be noted however that EBTs are also commonly used by listed companies alongside their fully taxable share incentive plans in order to act asa warehouse to hold the shares needed for the share awards, or for the EBT to act asan internal market for a private company - so that employees are able to buy and sell their shares.

For further reading, see Practice Notes:

  1. Share plans and share hedging

  2. Creating a market for shares in a private company

What are the types of EBT and how do they operate?

As set out above, there are many different types of EBT. However—and on the face of it—often they have a common purpose: that purpose being to avoid any liability asto income