Employee Benefit Trusts

Immediately after the Pre-Budget Report, the Government announced that it is legislating to counter the avoidance of tax and NICs through the abuse of Employee Benefit Trusts.

Employee Benefit Trusts are a form of "employee benefit scheme", where the trustees of the scheme are entitled to hold or use the trust fund, which may include contributions from the employer, to provide benefits to employees. Although existing legislation already places the liability for tax and NICs on the employer where payments and benefits are provided by someone other than the employer, new Regulations have been introduced to clarify the position further. They took effect from 28 November.

The principal effect of the Regulations is to clarify the definition of "employer" in the NICs legislation as being the secondary contributor and to provide that, where payments of earnings are made by an "intermediary" to employees of the employer, the liability for accounting for and paying the NICs on those payments to the Collector falls on the employer. Note that this is not a change to the current law; it is a clarification of the law to prevent NICs avoidance in some situations.

An intermediary includes persons that act on behalf of the employer and at the expense of the employer, or a trust set up to benefit the employees of the employer. It does not, however, include a payroll bureau that is engaged to administer the payroll and to calculate and pay over NICs to the Revenue. A bureau in this situation is acting as the agent of the employer, not as an intermediary, and is able to make deductions of tax and NICs on behalf of the employer and make payments in settlement of the employer's liability

In addition to these new regulations, the Government has also announced that it intends to include measures in the Finance Bill 2003 that will allow liabilities for tax and NICs on employer contributions to Employee Benefit Trusts to be deferred until payments are made to employees out of the trusts. The legislation, when made, will apply retrospectively to employer contributions that are paid into trusts from 27 November 2002 onwards.
Payroll Briefing 12 - 12 December 2002