Should you use an Employee Benefit Trust (EBT) or Offshore Scheme?

Contractors should be very careful about special schemes, solutions, short term tax loop-holes,

EBT’s, LLPs or companies that use complex offshore solutions. Many of these schemes were designed for legitimate purposes, however over time they have been leveraged for tax avoidance.

The option may seem very attractive at first, with some companies claiming that they will guarantee you up to 90% of your take home pay and offer generous expenses packages.

How EBT’s or Offshore Schemes work:

The EBT provider will pay you a small basic salary, which is around the minimum wage level. You will receive the remainder of your income through a loan or through expenses.

What Accountants say:

“If you work, live, and get paid in the UK, you will pay the same taxes as everyone else, whether you work through an umbrella company or a Limited company. If these schemes were safe, all accountants would offer them.”

What HMRC say:

Using an EBT, trust or offshore scheme can be seen as tax avoidance and as such should be completely avoided unless they are being used for the purpose they were intended for. Offshore non-compliance is expensive!

EBT/Offshore Scheme Check List

When forming and EBT, use this check list to ensure you don’t get caught out.

Avoid the following:

  • Payment of bonuses via an offshore trust
  • Payment of remuneration by way of loans, which may be written off before they become repayable
  • Create an offshore ‘moneybox’ for director/shareholders of closed companies
  • Allowing employees to use assets (such as cars) owned by the EBT, the costs of acquiring which would be capital expenditure if they were owned by the employing company
  • Providing benefits in the form of shares (not in the employing company) whose values can be most easily manipulated before or after they are transferred from the EBT to employees or directors

If you are unsure about your current situation, or need clarity on this topic, please do get in touch.

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