What's An Employee Benefit Trust

By Paul Barlow

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

Thousands of self employed contractors along with additional high net worth people have taken advantage of the superior rates of earnings that can be accomplished via the exploitation of an Employee Benefit Trust payroll system. Where as a normal Umbrella Company gives a total to net contract ratio of roughly 65% many Employee Benefit Trust solutions present a return of up to 85%. The opportunity to retain an additional 20% of YOUR pay has been seen as a huge bonus to high earners.

EBTs also were to become prevalent because of the additional security they presented. Through using an EBT and becoming an employee scheme members ended up being granted complete statutory employment rights and benefits. For people who wish to spend added time earning in addition to a reduced amount of time filling out paperwork this solution was ideal. The advantage over those that selected to use an Umbrella or even setup their private company was huge. At this moment you’re almost certainly thinking that an EBT looks too advantageous to be genuine, how come all and sundry isn’t using them?

The response to the second question is straightforward. Plan providers adjust the level at what they take on as minimum salary, more often than not this hovers around 50,000 a year. In essence it comes down to risk. EBTs were so tax efficient because of the nature of the loan payment that was given to the employee (i.e. the contractor). The contractor was paid a basic salary and the rest of the money was “loaned”. Because this was compensated as a loan (and not as salary) there was no assurance 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 occurrence where a business that has bought a debt would not ask for the money back? The broad consensus appears to be that those that are established onshore are not effective whilst those offshore were effective.

Despite the benefits of an EBT their attractiveness has been on steady decline. A lot of contractors perceive the risk of using an EBT as outweighing any probable savings. A situation that has not been assisted by a number of scheme providers being investigated by HMRC. But what alternate options are there? Government attitude in the direction of contractors looks confused at best, maybe baffling if being honest, there is no encouragement. How can you assume people to take the negative aspects associated with working for yourself if the bottom line is no better than being employed to perform the identical job(minus salaried holidays, pension)?

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For further information regarding the world of offshore finance and Employee Benefit Trusts in particlular please have a look at the Employee Benefit Trust website.