HMRC has proposed the EFRBS Settlement offering employers a direct opportunity to settle the tax arising on Employer Financed Retirement Benefit Schemes (EFRBS).
HMRC recently announced this settlement opportunity by writing to affected customers giving them the chance to settle open enquiries without the need to engage in time consuming litigation – an offer, HMRC claim, intended to minimise costs to both customers, and themselves.
Under the terms of the settlement offer, you have until 31 December 2013 to consider the options put forward by HMRC and register your interest in any one of them (registering interest at this stage won’t commit you to settling).
If you do choose to go down this route you’ll have until 30 June 2014 to wrap-up any agreed settlement.
If you choose not to register interest in either option, HMRC state they will issue closure notices and continue their enquiry process with a view towards litigation.
The options put forward by HMRC are:
Option 1: Disallowance of Corporation Tax Deduction
HMRC state if you choose option one, they would expect you to agree that no CT profits deduction is due for contributions made to EFRBS or for the associated professional fees, and you will pay interest for a period of nine months and one day beginning from the end of the accounting period from which the additional amounts are due.
In return for compliance in these areas, HMRC would expect to close their enquiries into your use of EFRBS arrangements and alter your status to indicate that no PAYE and NIC are due. They also note they would only seek a penalty in exceptional circumstances.
Option 2: Payment of PAYE and NIC
Option 2 has been proposed for employers who feel the basis for settlement in option one doesn’t reflect the facts of their personal case. If you agree that funds were paid to the EFRBS so to remunerate identified employees, chances are option two is the best offer for you to pursue.
If you choose option two, HMRC would expect you to pay PAYE income tax and national insurance contributions (NIC) on all allocations made by the EFRBS, and to “pay interest 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.”
In return for compliance in these areas, HMRC say they will do a number of things, including closing their enquiries into your use of EFRBS arrangements and cancelling any applicable regulation 80 determinations.
EFRBS Settlement FAQs
Due to the complexity of the situation, HMRC have published a detailed range of frequently asked questions (FAQs) to help you understand how each of these options will apply in practice. Items discussed in these FAQs include:
- Whether capital gains tax will arise if the PAYE settlement route is taken,
- Potential secondary income tax charges on investment income within EFRBS,
- Potential inheritance tax exit charges on funds leaving trusts,
- What happens if funds are distributed to beneficiaries after being extracted from an EFRBS following settlement of PAYE and NIC.
Unlike investment income, tax charges shouldn’t arise when distributing chargeable gains made by the EFRBS once you’ve settled with HMRC via PAYE. If after settling with an individual you’re not reimbursed by that individual, a benefit in kind charge will be made based upon the amount of tax they’ve personally not had to pay.
Your EFRBS Settlement
If you feel you could benefit from speaking with a professional regarding your options in relation to the EFRBS settlement opportunity, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting.
This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.