If you have used an ‘EFRBS’ (employer financed retirement benefit scheme) since 2006, you should shortly expect to receive a letter from the Taxman. This will allow you to pay tax which may have been avoided by using the ERFBS.

Various versions of EFRBS have been used by companies to make contributions into a trust for employees, for which the company has claimed a deduction against its taxable profits. The employees apparently did not suffer a taxable benefit in respect of the money held within the trust on their behalf. The Taxman is firmly of the opinion that this combination of tax allowable cost, and tax free benefit, does not legally stack-up.

He is now writing to all companies known to have used an EFRBS to offer them the choice of:

a) giving up the tax deduction for the contribution made into the EFRBS, and any deduction claimed for professional fees connected with setting up the EFRBS; or

b) paying PAYE and NICS due on the amounts contributed to the EFRBS.

These options relate to contributions made to an EFRBS from 6 April 2006 onwards. Where additional tax is due for an earlier year, interest will also be payable. Option a) may cost less now but in the future when the funds are paid out of the EFRBS to employees, those payments will be subject to PAYE.

We need to discuss which option, if any, will suit your company, and if you want to reject the Taxman’s offer in favour of fighting your case through the courts.