Starting a new business? Get 40% off our accountancy services for 3 months! 😀


According to HMRC, Employee Benefit Trusts (EBTs) are used to give directors and employees benefits such as shares in the company they work for, loans, pensions and other advantages during retirement, or benefits related to accidents or healthcare. However, these offshore trusts are being used increasingly to help employees avoid the payment of relevant duties, Pay As You Earn income tax, and National Insurance. As an employee or director, you would typically receive a small salary that is covered by your personal allowances, and the remainder will be paid either as a benefit or a loan.

How does an EBT work?

An Employee Benefit Trust is an offshore trust based in Gibraltar, Switzerland or the Isle of Man – all popular tax havens. A small salary is paid to the employee, which will either be covered by the due personal allowances or will be subject to a minimal payment of National Insurance and income tax. The remainder of the salary is paid as a benefit or a loan. Interest may be deducted from the loan, but the sum isn’t subject to PAYE deductions. As a result, the employee has a greater net salary than they would otherwise receive.
instant quotes for online accountancy

Drawbacks of an EBT

There are disadvantages of an Employee Benefit Trust. There’s a history of trusts being associated with tax avoidance and complex regulations must be adhered to. Specialist knowledge is required to understand the rules of operating an EBT, as tax charges may arise in some situations. You are personally liable for any tax which HMRC deems to be due, not the scheme provider. HMRC is clamping down on tax avoidance and will be looking closely at Employee Benefit Trusts. As it is widely believed that most members of an EBT are higher rate taxpayers, HMRC will collect more tax. If a scheme is closed by HMRC, the employee or director – rather than the scheme organiser – will be responsible for any outstanding liability, including amounts owed for previous years.

What to avoid

Although an EBT is a legitimate option for employees, it is also used for tax avoidance in some cases. For this reason, it is advisable to seek professional advice before signing up to an Employee Benefit Trust. According to HMRC, there are some things that must be avoided when an EBT scheme is being formed. They include bonuses being paid using an offshore trust, and providing shares as benefits when the values can be easily altered either before or following transfer from the EBT to the director or employee.

There are many other scenarios which, according to HMRC, should be avoided.

About The Author

Karl Bilby

We work very closely with our expert accountants to bring you the latest factually correct tax and accounting news. We also enjoy writing about small business news that we hope you find useful!

More posts by this author
Inline Feedbacks
View all comments

Read more posts...

Umbrella Companies for Self-Employed Contractors

When you set up in business as a contractor you might either work as a sole trader or as a limited company….

Read More

Get Ready for Small Business Saturday UK 2022

Small Business Saturday started in the US in 2010, on the first Saturday following Thanksgiving. It aims to encourage shoppers to consider…

Read More

Architects and Tax

Architecture is a highly diverse sector when it comes to tax. It’s partly down to the type of businesses that carry out…

Read More
Back to Blog...

Confirm Transactions

The number of monthly transactions you have entered based on your turnover seem high. A transaction is one bookkeeping entry such as a sale, purchase, payment or receipt. Are you sure this is correct?

Yes, submit my quote
No, let me change it

Please contact our sales team if you’re unsure

VAT Returns

It is unlikely you will need this service, unless you are voluntarily registered for VAT.

Are you sure this is correct?

Yes, the business is VAT registered
No, let me change it

Call us on 020 3355 4047 if you’re not sure.


You only need this service if you want us to complete the bookkeeping on your behalf.

Would you prefer to complete your own bookkeeping?


Call us on 020 3355 4047 if you’re not sure.