Money from Employee Benefit Trust

[Over over under steer]

Hello all, lost here, any advice hugely appreciate, and I'll try to keep this short.

Right at the end of last year I left a firm, with which I had both options and growth shares, as a good leaver (under voluntary redundancy) I've been able to exercise both.

The Company bought back the Growth shares via their Employee Benefit Trust (EBT) to the tune of £50,000.

Options to be exercised withing six months, will do in a month or two (value around £100k) at an exercise cost of £10k.

I am PAYE employee and don't complete a Self Assessment tax return, however now that recently I've received the payment of £50k from the EBT I have a CGT liability in this tax year, however I cannot do a Self return in time for 31 Jan as I would have needed to register by 1 October.

Short question, what do I do to declare this. I am a higher rate tax payer at 40%, just shy of the 45%.

Options I think can be next tax year's problem when I'll commence the routine of self assessing.

Thank you very much in advance for any advice.

[bradders]

To be honest with you, I thought all EBT schemes were now classified as disguised remuneration, and as such will be subject to full PAYE and NI claims by HMRC. Happy to be corrected on that, but I am (distantly now, thankfully, and covered by my S&P agreement) currently involved in such a settlement issue with HMRC.

My advice would be to seek professional help on the matter.

[Over over under steer]

bradders said:

To be honest with you, I thought all EBT schemes were now classified as disguised remuneration, and as such will be subject to full PAYE and NI claims by HMRC. Happy to be corrected on that, but I am (distantly now, thankfully, and covered by my S&P agreement) currently involved in such a settlement issue with HMRC.

My advice would be to seek professional help on the matter.

Thanks, I was informed by the firm that they were going EBT route specifically to reduce my tax liability. Being a firm in the Financial Services sector I, maybe foolishly, took that word as gospel!

Ah professional advice might well be the right route, but I've always liked to try and manage things myself, and more crucially, I am worried that if as its a 2018/19 liability, if I don't pay up this year I'll get a slap...

[rsbmw]

If it were me, I would call HMRC/self assessment and explain that you have received this 50k, which you weren't expecting prior to October, is it possible to get on the self assessment scheme for 18/19 at this late date

[bradders]

Over over under steer said:

Thanks, I was informed by the firm that they were going EBT route specifically to reduce my tax liability. Being a firm in the Financial Services sector I, maybe foolishly, took that word as gospel!

Ah professional advice might well be the right route, but I've always liked to try and manage things myself, and more crucially, I am worried that if as its a 2018/19 liability, if I don't pay up this year I'll get a slap...

What year did you do the EBT? Mine were from 2005-2011. Follower notices started to arrive in 2014. I sold up in 2015, and had an indemnity against any future claim by HMRC inserted into my S&P Agreement, after leaving an extremely hefty sum in an escrow account with bank to pay what was expected.

I would not dream of handling this myself - the settlement is being negotiated by a highly specialist team at my accountants (they still look after my former business). In 2017 HMRC issued my former business with a negotiate now or lose all rights notice. They had hoped (rather crazily in my opinion) that the problem could be pushed back for a further few years.

All schemes, to my knowledge, are different - setup in slightly different ways. Each has its own issues when it comes to negotiation - we used two providers and each scheme from both is different to the last. Please take professional advice (or make sure the firm do) as I am not sure anyone answering on here could be specific enough to help.

[Edinburger]

Over over under steer said:

bradders said:

To be honest with you, I thought all EBT schemes were now classified as disguised remuneration, and as such will be subject to full PAYE and NI claims by HMRC. Happy to be corrected on that, but I am (distantly now, thankfully, and covered by my S&P agreement) currently involved in such a settlement issue with HMRC.

My advice would be to seek professional help on the matter.

Thanks, I was informed by the firm that they were going EBT route specifically to reduce my tax liability. Being a firm in the Financial Services sector I, maybe foolishly, took that word as gospel!

Ah professional advice might well be the right route, but I've always liked to try and manage things myself, and more crucially, I am worried that if as its a 2018/19 liability, if I don't pay up this year I'll get a slap...

I wouldn't worry about getting a slap because they'll catch up with you soon enough, but I agree with Bradders and I also thought EBTs were classified as disguised remuneration and so are subject to PAYE and NI.

HMRC sought to recover millions in unpaid tax from Rangers football players who were EBT beneficiaries, after they were found by the Supreme Court to be due.

[Over over under steer]

Thanks all for your responses, and I'll start with a call to HMRC to explain my current position. Everything here is very much above board, and the firm, a large well known one, wouldn't do anything otherwise, so I take some confidence from that.

Once I've spoken to HMRC I'll decide what steps to take next, but it's looking like a well versed financial adviser should be enlisted to help.

And re them catching up, I'm very much sure they will, and have no desire to get to that point, tax on that lump sum was expected, just thought it would be an easier affair!

[bradders]

Edinburger said:

I wouldn't worry about getting a slap because they'll catch up with you soon enough, but I agree with Bradders and I also thought EBTs were classified as disguised remuneration and so are subject to PAYE and NI.

HMRC sought to recover millions in unpaid tax from Rangers football players who were EBT beneficiaries, after they were found by the Supreme Court to be due.

One other thing to add - as an individual I have also received demand notices. HMRC are basically going after the companies first, in the hope of recovery that way. If they fail for any reason, you will be next on the list.

Oh, and another thing - any promises made by "advisors" at the time of setup are basically worthless as far as HMRC are concerned. For many years, EBT's were seen as a tax efficient way of getting money to staff. The borrow the money and never pay it back route used was bound to come unstuck at some point now I look back on it clearly. Lots of snake oil and deception from the setup advisors in my experience. Please seek professional help, preferably via the company first, as the liability will fall with them first.

[schmunk]

EBTs are not, in themselves, dodgy; they've just been used extensively by dodgy people to do dodgy things (e.g. the offshore loan wheeze as alluded to above).

There are many genuine and non-dodgy reasons for a company to allocate a pot of money for the general welfare of employees to be distributed in a discretionary manner, and many (most?) large employers have such a facility available.

OP - if this was in the 2018/19 tax year (which hasn't yet ended), the self assessment registration deadline is 31 October 2019 and the tax return filing deadline 31 January 2020.

Edited by schmunk on Tuesday 8th January 13:13

[JulianPH]

schmunk said:

OP - if this was in the 2018/19 tax year (which hasn't yet ended), the self assessment registration deadline is 31 October 2019 and the tax return filing deadline 31 January 2020.

^^^ This.

[Over over under steer]

So I've just had a long call with HMRC which ended up with me being passed onto a technician specialist for a more detailed scenario based conversation - aside they were very polite and helpful. Essentially my EBT payment will be subject to CGT for my case.

The red face moment came as a direct result of my complete inexperience, and not taking a step back and thinking, due to my assumption that payment deadline was this end of this month. Of course it is in fact 31 Jan next year, so I have time on my hands to register as self assessed.

Points to @schmunk on picking that up.

Thanks to all those here that have helped, insights massively appreciated, and I will rope in a Financial Adviser to help with these transactions, and any others, going forward.

[2 GKC]

How come you're not doing a tax return? I thought everyone earning >£100k had to?

[jonwm]

Not sure of relevant but I got caught out by the family allowance 50k threshold this time last year.

I called after receiving the letter and they made provision for me to complete the self assessment in January even though never registered.

I also got a nice fine for not doing it the 3 years previous but that's another story :-) so it is possible for them to set you up even now.

Good luck trying to get through to them though