The PCG has recently issued a warning to contractors working for umbrella companies who think they may be receiving an employment benefit trust scheme, or EBTS. The government has instructed HMRC to clamp down forcibly on these schemes, which are now considered to be forms of disguised remuneration.
Even if your umbrella service claims to provide a “safe, secure, fully compliant, HMRC-approved scheme offering over 90 per cent net income retention,” you should beware. The claim is not only false, it’s now illegal, too.
EBTS and a closely-related product (employer funded retirement benefit schemes, or EFURBS) have been popular amongst high-earning freelancers of all kinds, from football stars to entertainers to high-end consultants contracting in the IT skills market, or the banking and financial sectors. Essentially, they divert some forms of regular income (or large bonuses) into “loans” which are taxed at minimal or zero rates. In our straitened economic circumstances, HMRC has closed these tax loopholes in order to haul in an extra £500 million per year in additional revenues.
A few large corporations and a small number of individuals may comply with new rules and continue to befit from the schemes, but HMRC estimates that upwards of 50,000 “employees” will no longer do so, as from 9th December last year. To compound matters, the new legislation doesn’t come with a cut-off date, unlike most other tax schemes, which means that it is by no means impossible for EBTS and EFURBS in place before the 9th December to be included.
The PCG is urging all who suspect that they or a colleague may be directly or indirectly involved in such schemes to seek swift advice from an independent expert.