Finance Bill Tracking Service 2007 | Budget 2007 | Budget Notes

BN38 Tax avoidance using employer benefit trusts

Who is likely to be affected?

1   Employers who make a deduction against taxable profits with respect to employee benefit contributions.

General description of the measure

2   The measure restricts the amount which an employer can deduct for tax purposes to the level actually paid to an employee in a taxable form within nine months of the end of the relevant accounting period.

Operative date

3   The measure will have effect for any action undertaken with the effect of creating or increasing the value of employee benefit contributions on or after 21 March 2007.

Current law and proposed revisions

4   Anti-avoidance provisions in Schedule 24 to the Finance Act 2003 and sections 38 to 44 of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA) prevent employers from making a deduction against their taxable profits to which they are not entitled.

5   These provisions restrict the value of any deduction in respect of an employee benefit contribution to the amount that is actually paid or transferred to the employee within 9 months of the end of the relevant accounting period in a form which gives rise to an income tax and to a National Insurance Contribution charge.

6   Schemes have been developed which attempt to side-step these rules. Rather than making a payment to an intermediary, such as an Employee Benefit Trust, employers declare a trust over assets which they already control, such as funds held in a bank account, and subsequently make a tax deduction to the value of that declaration.

7   Legislation will be introduced in Finance Bill 2007 to put beyond doubt that such self-declared contributions to employee benefit trusts are within the scope of Schedule 24 and its counterpart in ITTOIA. The legislation will also have effect where other arrangements have been made with the effect of creating or enhancing the value of employee benefit contributions.

8   The effect of the legislation will be to prevent an employer making a deduction for tax purposes in respect of any such contributions until they are paid to employees within 9 months of the end of the relevant accounting period in a form on which income tax and national insurance is due.

Further advice

9   Draft clauses and explanatory Notes are published today.

10 If you have any questions about this change, please contact Craig Mason on 020 7147 2599 (email: or Ruth Curtice on 020 7147 2602 (email: Information about Budget measures is available on the HM Revenue & Customs website at