Murray Group Holdings – where now for taxpayers?

Murray Group Holdings Ltd [2014] BTC 521) is now moving on from the Upper Tribunal to the Scottish Court of Session and the battle, therefore, continues. In the meantime taxpayers have some strategic thinking to do.

Withdrawal of the Employee Benefit Trust (“EBT”) Settlement opportunity

HMRC announced, in August 2014, that they were withdrawing the EBT Settlement opportunity with effect from March 2015.  As a result of the withdrawal, the settlement opportunity will only be available to employers who have notified HMRC of their intention to settle before 31 March 2015 and then have subsequently entered into a settlement before 31 July 2015, having paid all tax due by that date (or later by agreement). According to HMRC, take up rate of the settlement opportunity has been encouraging, with sign up by over 700 employers raising 800m. The idea is that HMRC will settle enquiries on the basis that payments and allocations made to individuals out of EBTs prior to 6 April 2011 will be treated as earnings and the income taxed once and for all on that basis.

Is the settlement opportunity a good deal for taxpayers?

Probably not is the short answer, at least where loans out of the trust to beneficiaries are concerned. In Murray Group the arrangements involved establishment of a remuneration trust for the benefit of group employees and their families, the creation of some 100 sub-trusts, funding by employer companies, and loans to employees. Loans for an extended term on a discounted basis were then granted by the trustees to employees. The terms of the loans had not expired, but the employees’ general expectation was that they would be renewed. For similar cases, settling with HMRC does not seem an attractive option. However, EBT’s come in all shapes and sizes and some are very much better managed and implemented than others; each case has to be judged on its own merits after an examination of the paperwork which will include notes, minutes, memoranda, e-mails, notes of meeting, letters, and any other written information relating to the setting up of the trust and its subsequent management, including loans and any other benefits granted to beneficiaries.

Levy and Levy conclusion

The EBT settlement opportunity has been around now for a long time, four years, and in the light of Murray Group has surely outlived its useful purpose.   However, the door is still open for taxpayers with an unfavourable act pattern, or those worried that the Upper Tribunal’s decision in Murray Group will be overturned, to settle with HMRC. Now is the time to assess the documentation and decide.

Levy and Levy – the tax investigations and resolution specialists in London and Tunbridge Wells