If you are a contractor or freelancer working in the UK you may have been pitched the tax benefits of paying yourself through an Employee Benefit Trust (EBT).

With an EBT contractors receive just a basic wage equivalent to the Statutory National Minimum Wage. The remainder of their gross earnings go into an EBT, usually offshore. The company making the payment also claims Corporation Tax relief on these payments. The trust then “loans” back the money to the contractor and this loan is not therefore taxable. The loan is never repaid. In effect you receive your wages tax free.

EBT’s have been used from such professions as IT Contractors to Premier League Footballers.

Reading this process the first thought of most people is the old adage that “If it sounds too good to be true it probably is”!

A recent case between HMRC and Rangers Football Club has now ruled that such payments should be treated as taxable income. HMRC had previously lost appeals in 2012 and 2014.

It was ruled that if income was derived from an employee's services it was an emolument and "thus assessable to income tax".

The BBC have reported a full summary of the case: http://www.bbc.co.uk/news/uk-34720850

If you have previously participated in an Employee Benefit Trust it would be prudent to seek specialist taxation advice.

For 100% compliant ways to be paid Umbrella can help contractors be paid through their in-house umbrella company or through your own limited company.

Please call Umbrella on 0800 121 6513 or email: team@umbrella.co.uk