The government is to close a loophole around Employee Benefit Trusts (EBTs) where employers have been claiming tax relief on contributions ahead of benefits being paid out to employees, Budget background documentation has revealed.
It is also†introducing new regulations regarding the taxation of benefits given to retired employees.
EBTs are used by employers to provide benefits, such as shares awarded under share incentive schemes, the provision of death in service benefits and permanent health insurance.
Legislation is to be introduced that is designed to close a loophole under which employers were able to claim corporation tax relief on the money held in the trust prior to the employee receiving the benefit and paying tax and national and insurance on it.
Sue Bartlett, an executive compensation specialist at Watson Wyatt, said the change would only affect a small number of employers who were exploiting the loophole.
The rules on benefits provided to retired employees will also change. Most non-cash benefits are currently taxable if they exceed £100 per year. The new legislation will mean that where a benefit is provided tax-free to a current employee, there would be no tax charge where this benefits continues in retirement.
This could cover items such as the continued provision of living accommodation, welfare counselling, annual parties and equipment for disabled employees. There is also a clause in the background material stating that this will cover the writing of wills and benefits that were first provided before 6 April 1998. It is not yet clear whether this means benefits that were provided to the employee who has retired, or to any employee of the company.