EBT's in IOM - Worth it ?

[arfur]

One for the business accountants this :

I've been offered the chance to become employed by a business that will do my invoicing on my behalf. They will pay me a minimal salary and deal with paye/nics etc. After taking a fee they will then transfer the rest of my money to their partner company who will in turn place the funds into an EBT in the Isle of Mann. This is effectively a loan which I can then draw down on a monthly basis

Insofar as tax is concerned this scheme would mean that an additional 25-30% of my income end up in my pocket and not Gordons'.

I believe that this scheme is legal and is used by the big consultancy firms to reward their more senior folks.

Anyone know anything more ?

Arf

[Eric Mc]

EBT?

[arfur]

Eric Mc said:

EBT?

Employee Benefit Trust

look at www.walbrookgroup.com under Employee Benefit Services

[Eric Mc]

Sounds very escoteric and specialist - and something you must be absolutely sure of the tax rules governing such arrangements before embarking on such a course.

Gordon Brown has announced various attacks on all such schemes which serve to remove "employees" from the normal PAYE and National Insurance regiume and, if he hasn't done so yet, will no doubt crack down on such arrangements as soon as possible.

With the recent changes to the taxation of Managed Service Companies, all sorts of weird and wonderful (and possibly marginally legal) tax avoidance schemes are being mooted.

[arfur]

Eric Mc said:

Sounds very escoteric and specialist - and something you must be absolutely sure of the tax rules governing such arrangements before embarking on such a course.

Gordon Brown has announced various attacks on all such schemes which serve to remove "employees" from the normal PAYE and National Insurance regiume and, if he hasn't done so yet, will no doubt crack down on such arrangements as soon as possible.

With the recent changes to the taxation of Managed Service Companies, all sorts of weird and wonderful (and possibly marginally legal) tax avoidance schemes are being mooted.

This scheme has been around for years and has been challenged in the past without success. It is not currently reportable as a avoidance scheme. I was just pinging the group to see what other knowledge is out there regarding this kind of scheme

[Eric Mc]

It's certainly something I wouldn't know too much about - even though I'm an accountant.

It really is something that only the bigger organisations would be prepared to set up and handle (and charge for appropriately, no doubt). I see that the people you mention in your post were once part of Deloittes but were hived off in a management buyout. I wonder why Deloittes were willing to sell?

Edited by Eric Mc on Monday 16th April 10:31

[arfur]

Eric Mc said:

It's certainly something I wouldn't know too much about - even though I'm an accountant.

It really is something that only the bigger organisations would be prepared to set up and handle (and charge for appropriately, no doubt). I see that the people you mention in your post were once part of Deloittes but were hived off in a management buyout. I wonder why Deloittes were willing to sell?

Edited by Eric Mc on Monday 16th April 10:31

As I understand it, all the 'big boys' used to offer these schemes but were requested by the treasury to stop the practice or risk losing more valuable govt contracts. The people who set up the IOM business and the UK side of the operation are ex-Deloittes

The scheme is being marketed to 175k+ IT contractors... But keeping the numbers low as to avoid attention

[Eric Mc]

Hmmmmmmmm.

I am sure Gordon and his minnions are, even now, scrutinising such arrangements.

[arfur]

Eric Mc said:

Hmmmmmmmm.

I am sure Gordon and his minnions are, even now, scrutinising such arrangements.

Quite possible, but if it works for a year or two then that's a good saving ! And none of these schemes have ever been 'backdated' once closed.

[justinp1]

arfur said:

Eric Mc said:

Hmmmmmmmm.

I am sure Gordon and his minnions are, even now, scrutinising such arrangements.

Quite possible, but if it works for a year or two then that's a good saving ! And none of these schemes have ever been 'backdated' once closed.

I have actually heard of this scheme and heard of users for the last couple of years. The figures I was quoted was something like a 10-15% 'cut' for the total tax and management charge.

It is slightly different to the process of merely claiming 'dual taxation' benefits I believe, however from my research this is a more viable longer term option by creating a 'management base' in the IOM and being paid from there.

The only problem with the other avoidance systems is that they are liable for changes in the law with regard to taxes applicable to loans and other trusts. Eric Mc probably knows more, but I do believe a couple of these type of schemes have been effectively closed down due to changes in the law making them financially unattractive again.

I do believe that the IOM is one of the best places to start though. I have also read an article that there is a harcore of commuters who fly into London each day from Douglass airport - and it is worth their while just for the taxation incentives!

[arfur]

justinp1 said:

arfur said:

Eric Mc said:

Hmmmmmmmm.

I am sure Gordon and his minnions are, even now, scrutinising such arrangements.

Quite possible, but if it works for a year or two then that's a good saving ! And none of these schemes have ever been 'backdated' once closed.

I have actually heard of this scheme and heard of users for the last couple of years. The figures I was quoted was something like a 10-15% 'cut' for the total tax and management charge.

It is slightly different to the process of merely claiming 'dual taxation' benefits I believe, however from my research this is a more viable longer term option by creating a 'management base' in the IOM and being paid from there.

The only problem with the other avoidance systems is that they are liable for changes in the law with regard to taxes applicable to loans and other trusts. Eric Mc probably knows more, but I do believe a couple of these type of schemes have been effectively closed down due to changes in the law making them financially unattractive again.

I do believe that the IOM is one of the best places to start though. I have also read an article that there is a harcore of commuters who fly into London each day from Douglass airport - and it is worth their while just for the taxation incentives!

With this system the example is as such ( assuming a single payment here ):

100k to be invoiced during the year by UK co ...
They pay you as an employee 12k paye
they take their cut/fees and then pass 71k to trust managers
they put into IOM EBT
ION EBT is drawn down in full by you
You have a BIK on the 71k to pay to the IR basic rate % of 5% of the 71k

SO you end up a lot more than 10-15% better off than PAYE and certainly 25% better off than PAYE/Dividend/pay the wife combo

[justinp1]

arfur said:

justinp1 said:

arfur said:

Eric Mc said:

Hmmmmmmmm.

I am sure Gordon and his minnions are, even now, scrutinising such arrangements.

Quite possible, but if it works for a year or two then that's a good saving ! And none of these schemes have ever been 'backdated' once closed.

I have actually heard of this scheme and heard of users for the last couple of years. The figures I was quoted was something like a 10-15% 'cut' for the total tax and management charge.

It is slightly different to the process of merely claiming 'dual taxation' benefits I believe, however from my research this is a more viable longer term option by creating a 'management base' in the IOM and being paid from there.

The only problem with the other avoidance systems is that they are liable for changes in the law with regard to taxes applicable to loans and other trusts. Eric Mc probably knows more, but I do believe a couple of these type of schemes have been effectively closed down due to changes in the law making them financially unattractive again.

I do believe that the IOM is one of the best places to start though. I have also read an article that there is a harcore of commuters who fly into London each day from Douglass airport - and it is worth their while just for the taxation incentives!

With this system the example is as such ( assuming a single payment here ):

100k to be invoiced during the year by UK co ...
They pay you as an employee 12k paye
they take their cut/fees and then pass 71k to trust managers
they put into IOM EBT
ION EBT is drawn down in full by you
You have a BIK on the 71k to pay to the IR basic rate % of 5% of the 71k

SO you end up a lot more than 10-15% better off than PAYE and certainly 25% better off than PAYE/Dividend/pay the wife combo

So in a nutshell their cut is 17% approx and you are paying £3500 in tax as 5% of the rest. - So a total of maybe 22%ish overall.

Thats pretty good. Out of interest why would they pay £12k as PAYE and not minimise the tax applicable and go for £5k or the max your tax code allows as tax free allowance?

[arfur]

justinp1 said:

arfur said:

justinp1 said:

arfur said:

Eric Mc said:

Hmmmmmmmm.

I am sure Gordon and his minnions are, even now, scrutinising such arrangements.

Quite possible, but if it works for a year or two then that's a good saving ! And none of these schemes have ever been 'backdated' once closed.

I have actually heard of this scheme and heard of users for the last couple of years. The figures I was quoted was something like a 10-15% 'cut' for the total tax and management charge.

It is slightly different to the process of merely claiming 'dual taxation' benefits I believe, however from my research this is a more viable longer term option by creating a 'management base' in the IOM and being paid from there.

The only problem with the other avoidance systems is that they are liable for changes in the law with regard to taxes applicable to loans and other trusts. Eric Mc probably knows more, but I do believe a couple of these type of schemes have been effectively closed down due to changes in the law making them financially unattractive again.

I do believe that the IOM is one of the best places to start though. I have also read an article that there is a harcore of commuters who fly into London each day from Douglass airport - and it is worth their while just for the taxation incentives!

With this system the example is as such ( assuming a single payment here ):

100k to be invoiced during the year by UK co ...
They pay you as an employee 12k paye
they take their cut/fees and then pass 71k to trust managers
they put into IOM EBT
ION EBT is drawn down in full by you
You have a BIK on the 71k to pay to the IR basic rate % of 5% of the 71k

SO you end up a lot more than 10-15% better off than PAYE and certainly 25% better off than PAYE/Dividend/pay the wife combo

So in a nutshell their cut is 17% approx and you are paying £3500 in tax as 5% of the rest. - So a total of maybe 22%ish overall.

Thats pretty good. Out of interest why would they pay £12k as PAYE and not minimise the tax applicable and go for £5k or the max your tax code allows as tax free allowance?

Not 3500 in tax .. its 22% of (5% of 71k) so about 700 quid

Dunno about the salary bit .. I guess it's to keep prying eyes away to some extent .

I've signed up for it and if it looks good I'll post the contact details for others to use. Not that they are aiming at high rate contractors 750-900+ a day people ...

Even if it only lasts a couple of years then it will save me the cost of a new Lambo !

[TDIPLC]

My company has operated an EBT for quite a while.

We looked around for a long time for a decent Trustee (there are sheisters are there), and even changed Trustees when we became disatisfied.

Our accountant is a specialist in thie field, so I can hook you up if needed.

One thing though, I was led to believe that EBT's were only available Oor effective) to Co's with more than 5 employees, so I don't know whether it will work for anthing smaller?

Hope this helps a little

Mark

Edited by TDIPLC on Monday 16th April 21:17

[Smartie]

is it fair to say you might get investigated by HMRC (far) more often after starting one of these schemes?

[srebbe64]

I've looked at EBT's over the years, however never did it because you wouldn't believe the potential grief they cause if you come to sell the business. I have a limited knowledge, but I gather that the IR get very suspicious if the "benefits" are not distributed to to several (well deserving, no doubt) employees and not just one or two (possibly) shareholders.

That said, I was chatting to a Tax expert the other day and he said that EBT's are making a comeback. As such, I'll sit nicely on the fence on this one! Although, one thing that makes me nervous in any of these schemes is The Revenues power to introduce "retrospective legislation". To me this is no better than the speed limit being increased to 50 mph on motorways and then being fined for the last however many years because of past offenses. I mean, how are you meant to have Tax planning measures in place if The IR can alter things in such a way?

[arfur]

srebbe64 said:

I've looked at EBT's over the years, however never did it because you wouldn't believe the potential grief they cause if you come to sell the business. I have a limited knowledge, but I gather that the IR get very suspicious if the "benefits" are not distributed to to several (well deserving, no doubt) employees and not just one or two (possibly) shareholders.

That said, I was chatting to a Tax expert the other day and he said that EBT's are making a comeback. As such, I'll sit nicely on the fence on this one! Although, one thing that makes me nervous in any of these schemes is The Revenues power to introduce "retrospective legislation". To me this is no better than the speed limit being increased to 50 mph on motorways and then being fined for the last however many years because of past offenses. I mean, how are you meant to have Tax planning measures in place if The IR can alter things in such a way?

There are currently over 500 people in the scheme ... The max is 1000. So I guess the distributions will not be an issue.

I know that the IR can retro bill you if they want, but it's a risk worth taking on this one. If it lasts for a couple of years I save loads ... That said, I'll be saving the £, not spending it so from that perspective I cant really lose

[arfur]

TDIPLC said:

My company has operated an EBT for quite a while.

We looked around for a long time for a decent Trustee (there are sheisters are there), and even changed Trustees when we became disatisfied.

Our accountant is a specialist in thie field, so I can hook you up if needed.

One thing though, I was led to believe that EBT's were only available Oor effective) to Co's with more than 5 employees, so I don't know whether it will work for anthing smaller?

Hope this helps a little

Mark

Cheers ... There are over 500 in the scheme so far. As you end up an employee of the UK arm.

[TDIPLC]

srebbe64 said:

I've looked at EBT's over the years, however never did it because you wouldn't believe the potential grief they cause if you come to sell the business. I have a limited knowledge, but I gather that the IR get very suspicious if the "benefits" are not distributed to to several (well deserving, no doubt) employees and not just one or two (possibly) shareholders.

That said, I was chatting to a Tax expert the other day and he said that EBT's are making a comeback. As such, I'll sit nicely on the fence on this one! Although, one thing that makes me nervous in any of these schemes is The Revenues power to introduce "retrospective legislation". To me this is no better than the speed limit being increased to 50 mph on motorways and then being fined for the last however many years because of past offenses. I mean, how are you meant to have Tax planning measures in place if The IR can alter things in such a way?

I'm not sure whether that is the case. My understanding is that an established EBT can add value to a potential sale of the business because the infrastructure set up costs have already been paid for and there is a clear strategy for effective tax management in place. Assets within the EBT can be transfered upon the sale of the business.

We use our EBT in the nature of it's intention, ie the Employees recieve benefits by way of cheap loans, free use of property assets, paid for training and recreation etc etc. We have found this a useful tool for attracting star employees because we can demostrate how we value of our staff.

Mr Brown attacked EBT's a couple of years ago by removing the tax free status of contributions, so I hope it's off his radar for a while because they are very useful in providing incentivisation.

Incidentally, I believe it was George Soros (the same guy that nearly bankrupted the UK under the Major adminstration) that brought about an end to the tax free contributions because he found a loop hole that allowed the aquisition of a substantial property portfolio through an EBT vehicle.

[justinp1]

arfur said:

justinp1 said:

arfur said:

justinp1 said:

arfur said:

Eric Mc said:

Hmmmmmmmm.

I am sure Gordon and his minnions are, even now, scrutinising such arrangements.

Quite possible, but if it works for a year or two then that's a good saving ! And none of these schemes have ever been 'backdated' once closed.

I have actually heard of this scheme and heard of users for the last couple of years. The figures I was quoted was something like a 10-15% 'cut' for the total tax and management charge.

It is slightly different to the process of merely claiming 'dual taxation' benefits I believe, however from my research this is a more viable longer term option by creating a 'management base' in the IOM and being paid from there.

The only problem with the other avoidance systems is that they are liable for changes in the law with regard to taxes applicable to loans and other trusts. Eric Mc probably knows more, but I do believe a couple of these type of schemes have been effectively closed down due to changes in the law making them financially unattractive again.

I do believe that the IOM is one of the best places to start though. I have also read an article that there is a harcore of commuters who fly into London each day from Douglass airport - and it is worth their while just for the taxation incentives!

With this system the example is as such ( assuming a single payment here ):

100k to be invoiced during the year by UK co ...
They pay you as an employee 12k paye
they take their cut/fees and then pass 71k to trust managers
they put into IOM EBT
ION EBT is drawn down in full by you
You have a BIK on the 71k to pay to the IR basic rate % of 5% of the 71k

SO you end up a lot more than 10-15% better off than PAYE and certainly 25% better off than PAYE/Dividend/pay the wife combo

So in a nutshell their cut is 17% approx and you are paying £3500 in tax as 5% of the rest. - So a total of maybe 22%ish overall.

Thats pretty good. Out of interest why would they pay £12k as PAYE and not minimise the tax applicable and go for £5k or the max your tax code allows as tax free allowance?

Not 3500 in tax .. its 22% of (5% of 71k) so about 700 quid

Dunno about the salary bit .. I guess it's to keep prying eyes away to some extent .

I've signed up for it and if it looks good I'll post the contact details for others to use. Not that they are aiming at high rate contractors 750-900+ a day people ...

Even if it only lasts a couple of years then it will save me the cost of a new Lambo !

So, just to get this right, the technicality is that you are only paying tax on the benefit of the loan itself as oppose to the loan?

If this is the case, then would you have to pay the tax in year 2 on the benefit of the loans in year 1 and 2 and so on?

My other thought is what would happen if the company have to be wound up? Would the EBT funds be ringfenced, or could their be the possibility that lets say for example the company was wound up owing £50k to VAT or anything else, then could it reasonably be argued that as a director, or indeed the person who is really managing the situation that this might cause an investigation into their actions?

Would the system work of a UK Ltd co?