Employment Tax

Employee trusts ― implications of disguised remuneration and where are we now?

Produced by Tolley in association with Karen Cooper of CooperCavendish LLP
  • 24 Jun 2022 13:23

The following Employment Tax guidance note Produced by Tolley in association with Karen Cooper of CooperCavendish LLP provides comprehensive and up to date tax information covering:

  • Employee trusts ― implications of disguised remuneration and where are we now?
  • Why do companies establish EBTs?
  • Who can act as trustees of an EBT?
  • How is an EBT funded?
  • Corporation tax deductions for EBTs
  • IHT
  • CGT for UK resident EBTs
  • Section 218 notices
  • Trust registration service
  • Post-disguised remuneration

Employee trusts ― implications of disguised remuneration and where are we now?

Employee benefit trusts (EBTs) are commonly used to support employees’ share schemes and to provide other benefits to employees in the form of pensions and bonuses.

Their use has been significantly affected by the introduction of the disguised remuneration rules. For further information, please see the Disguised remuneration ― overview guidance note. Although the statutory exclusions from those rules cover many of the share scheme-related activities of EBTs, some of their historic uses, such as providing loans to employees or opportunities for wealth creation through long-term investment schemes, have been substantially curtailed.

However, the use of EBTs as a vehicle for employee ownership had a welcome boost following the Nuttall report. As a result, new tax advantages were introduced in Finance Act 2014 for employee owners who dispose of their interests in companies to employee ownership trusts (EOTs). The employment tax effects are covered in the Exemption from tax for bonuses paid by qualifying companies guidance note.

Why do companies establish EBTs?

An EBT is usually established by a company which provides it with assets in the form of cash or shares for the benefit of its employees. The operation of the EBT is governed by the trust deed which lays down the obligations of the sponsoring company, and the powers and duties of the trustees. The trustees

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