HOW TO PROCEED
An Employee Benefit Trust (EBT) is a Discretionary Trust established under a trust deed and introduced by a business, whether it be a company, a group of companies or a partnership, for the benefit of past, present and future employees and their relatives. The trust deed sets out the names of the trustees and the powers which they have been granted by the business. The trustees typically have the power to decide who is to benefit, how they are to benefit and when they are to benefit. By making regular payments into the fund, employers can give employees access to a range of different benefits in the form including cash distributions, loans as well as shares in the employer company.
Previously, by making contributions to an EBT, the company could reduce its taxable profits. Employers could claim corporation tax relief on contributions to the EBT before the employees received any benefit or paid tax and national insurance on it. However, the case of MacDonald vs Dextra and the introduction of legislation in 2003, 2004 and 2007 have narrowed the extent to which an EBT can be used as a tax-saving vehicle by the company. Corporation tax relief on the contributions made by the company cannot be claimed until a taxable benefit is conferred on an employee. Effectively the tax relief for the company is deferred until a payment is made out of the EBT in a form that gives rise to a liability to income tax and NIC for the employees.
There are a variety of ways in which employers can use EBTs for the benefit of their employees:
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