The Pensioneer Trustee Company (Guernsey) Limited
T +44 (0) 1481 743760
Employer Financed Retirement Benefits Schemes (EFRBS) for a while were a popular pension planning tool as they appeared to allow a Corporation Tax deduction for employer contributions to an EFRBS scheme on the basis that either (a) the contribution to the EFRBS or (b) a subsequent transfer to a second EFRBS is a ‘qualifying benefit’. This allowed the company to secure a Corporation Tax deduction before any benefits are actually paid by the scheme to the employee.
HMRC’s view, which has not yet been successfully confirmed in court, is that neither transaction involves the provision of a ‘qualifying benefit’ and therefore would not generate a corporation tax deduction. Instead, HMRC argues that corporation tax relief should be withheld until the employee receives a taxable ‘qualifying benefit’ from the EFRBS.
HMRC have been offering a settlement opportunity for employers that have previously claimed a corporation tax deduction for contributions to an EFRBS before the benefits are paid to the employee. The company can either choose to disallow the contributions for corporation tax, or treat the contributions as remuneration, thereby incurring PAYE and NICs on the contributions, but retaining the corporation tax deduction. The former option generally results in lower overall tax. Under the settlement opportunity, no penalties should be incurred by the company although interest on late payment of tax may be due.
The settlement opportunity will only be available to employers who have notified HMRC of their intention to settle under the settlement opportunity before 31 March 2015 and then only for agreements that are subsequently entered into before 31 July 2015 with all amounts due under the settlement agreement either paid, or with a signed time to pay agreement in place, by that date.