Sanzar EBT draws HMRC attention

Thursday 26 September 2013

Tax can be a thorny issue for many contractors. Tasked with handling their own accounts, many freelancers can find themselves struggling to make sure they pay the right amount of tax while legitimately arranging their affair in such a way to ensure that checking they do not pay more than necessary. Now it seems another of the solutions marketed to contractors over the years has attracted interest from HMRC.

According to an article published on ContractorUK, those contractors who used an employee benefit trust (EBT) operated from the Isle of Man by Sanzar Solutions between 2008 and 2011 could soon be receiving tax assessments from HMRC.

It is believed that some contractors who worked through Sanzar Solutions have tried to draw their income in the form of loans made by EBTs as a way of reducing their tax bills. Under this type of arrangement, a contractor would allow the company to hold the contract on their behalf and pay them a relatively low fixed salary. However, the lion’s share of the contractor’s fees would then be paid out in the form of a loan, which was neither written off nor directly repaid - resulting in a lower tax bill than if paid through more conventional means.

This is a way of thinking that has been around since at least 2011, when new rules were introduced as part of an attempt to curb use of the schemes. At that time, HMRC opened a settlement programme whereby companies using EBTs could settle their tax bills without facing lengthy legal proceedings - with interest charged on tax payable as per the standard rules.

A number of high-profile cases have emerged in recent years regarding the use of EBTs, with the protracted dispute between HMRC and Rangers football club among the most well-publicised. In that case, the tax authority argued that the Glasgow club owed £35 million in unpid tax and £14 million in surcharges because it had used EBT loans to remunerate it’s players. If EBT loans were mentioned in the original contract then they would be considered part of an employee’s salary, tax officials argued, and were therefore subject to standard income tax and National Insurance contributions.

BBC reports at the time suggested that Celtic, Ranger’s main rival in the Scottish Premier league, had set up a similar scheme in 2005 worth more than £700,000. However, when the club found out about a potential tax liability in 2008, they settled up with HMRC.

HMRC has informed contractors via its website that if they have received an assessment letter, they have the option of accepting the assessment and paying the tax outright, or lodging an appeal with the tax authority. This could ultimately mean going to a tax tribunal.

Contractors who are using offshore service providers should ideally look to switch to a UK-based alternative to avoid any problems that could arise in the future. Meanwhile, anyone who has used one in the past is strongly advised to seek professional advice regarding current investigations and possible next steps.

By Victoria McDonnell

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