Learn What An Ebt Is

By Paul Barlow

With Employee Benefit Trusts in the limelight yet again it is well worth taking the time to go over what precisely an EBT is. What started of with noble intentions has become a nightmare.

Thousands of self employed contractors and other high net value individuals have taken advantage of the superior rates of remuneration that can be accomplished via the use of an Employee Benefit Trust payroll system. Where as a conventional Umbrella Company offers a gross to net contract ratio of around 65% many Employee Benefit Trust options present a return of up to 85%. The chance to retain an further 20% of YOUR pay has been seen as a massive bonus to high earners.

EBTs also were to become prevalent because of the added security they presented. By using an EBT and becoming an member of staff scheme members were granted complete statutory employment rights and benefits. For people who have a preference to spend further time earning along with a lesser amount of time filling out paperwork this solution was perfect. The advantage over those that chose to make use of an Umbrella or even setup their own company was massive. At this moment you’re in all probability thinking that an EBT appears too good to be genuine, how come everyone isn’t using them?

The reply to the second question is simple. Scheme providers vary the level at what they take on as minimum earnings, usually this hovers in the region of 50,000 a year. In essence it comes down to risk. EBTs were so tax efficient because of the type of the loan payment that was given to the employee (i.e. the contractor). The contractor was rewarded a basic salary and the remainder of the money was “loaned”. Since this was paid as a loan (and not as salary) there was no guarantee that the loan wouldn’t be called in. This is all brilliant unless the person managing the payroll experiences cash problems and perhaps has to sell the loan on. Is there any example where a business that has purchased a debt wouldn't ask for the money back? The common consensus seems to be that those that are based onshore are not effective whilst those offshore were being effective.

Despite the benefits of an EBT their acceptance has been on steady decline. A lot of contractors see the risk of using an EBT as outweighing any prospective savings. A scenario that has not been assisted by some scheme providers being investigated by HMRC. But what options are there? Government feelings towards contractors would seem puzzled at best, maybe baffling if being straightforward, there is no encouragement. How can you assume individuals to take the disadvantages associated with working for yourself if the bottom line is no better than being employed to achieve the equivalent job(minus salaried holidays, pension)?

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For further information in relation to the world of offshore finance and Employee Benefit Trusts in particlular please take a look at the Employee Benefit Trust site.