Employee Benefit Trusts
How are most Employee Benefit Trusts established?
Most current Employee Benefit Trust structures can be shown by the diagram below. We've also included the answers to some Frequently Asked Questions.
Frequently Asked Questions
Q. What is an Employee Benefit Trust?
A. Put simply, it is a trust for the benefit of the employees. The trust is set up to benefit potentially any employee within the business. The company may ask the Trustees to set up subtrusts for one or more key employees.
Q. What conditions apply to the company?
A. The company usually has to be trading, profitable and has to have the cash available to pay bonuses without damaging it's ability to trade going forward.
Q. How and when do employees take their money from the trust or subtrust?
A. One of the key benefits for employees is the flexibility that a subtrust can give. Employees can take their funds out immediately or may choose to retain the funds within the EBT/Subtrust depending on their personal circumstances and lifestyle needs.
Our experience is that many employees will choose to take their funds out immediately, usually via a loan but sometimes via an outright withdrawal of the funds. However, a significant proportion of employees choose to leave their money within their subtrust bank account as opposed to asking for the funds to put in their own personal bank account. Some employees may ask their Trustees to invest the money in accordance with their wishes, for example, perhaps purchasing Buy To Let property.
Each of these options will have a tax consequence.
If you have any other questions that you would like to ask, please contact us.
How do HM Revenue and Customs react to Employee Benefit Trusts?
Many of the Employee Benefit Trust arrangements are known to HM Revenue and Customs due to the Disclosure Of Tax Avoidance Schemes rules. Any client that implements a "DOTAS" scheme has to put the reference number of that scheme on their relevant Corporate Tax Return.
HM Revenue and Customs is likely to enquire into any Tax Return with a "DOTAS" scheme number, particularly where a Corporate Tax deduction is being claimed. Usually this is via an Aspect Enquiry (where they just look at the scheme) but can also be via a General Enquiry (where they look at everything).
