Employee Benefit Trusts – Still a Useful Vehicle?

There has been significant media coverage regarding the Inland Revenue’s seemingly continual attack on EBTs in recent months. Following the outcome of the Dextra/Caudwell case in July 2002 (in which the Revenue lost on all 4 counts), new legislation effecting the tax treatment of contributions to an EBT was introduced in the Pre-Budget Statement (November 2002). Whilst the new legislation was not retrospective, it effectively brings a contribution made to an EBT within the definition of a "potential emolument". This means that if Corporation Tax relief is to be claimed for the accounting period in which the contribution is made, the trustees are required to provide "qualifying benefits" to the company’s employees within that period - or within nine months of the end of that accounting period – or pay "qualifying expenses". If the trustees do not provide such benefits or incur such expenses, the Corporation tax relief will be deferred until the date the employee suffers a tax charge