Employer-Financed Retirement Benefits Scheme (Spotlight 6)
Published 5 August 2010
© Crown copyright 2010
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Customers, their advisers and promoters should be aware that HM Revenue and Customs (HMRC) consider this tax avoidance scheme to be ineffective. This means that HMRC will investigate tax returns where this scheme has been used and seek full settlement of the tax due, plus interest and penalties where appropriate. You should also be aware that some ineffective schemes may give rise to unexpected tax consequences.
HMRC are aware of schemes where companies claim a Corporation Tax deduction for employer contributions to an Employer-Financed Retirement Benefits Scheme (EFRBS) scheme. Working on the basis that either of the following apply:
- the contribution to the EFRBS
- a subsequent transfer to a second EFRBS is a ‘qualifying benefit’
This would allow the company to secure a Corporation Tax deduction before any benefits are actually paid by the scheme to the employee. HMRC believe neither transaction involves the provision of a ‘qualifying benefit’.
It has been argued that there may be some ambiguity in the law around the meaning of the phrase ‘transfer of assets’. For it does not state to whom the transfer is to be made, in HMRC’s view the context resolves any ambiguity.
The law defines ‘qualifying benefits’. As benefits that if paid under the terms of an EFRBS, would likely fall within the employment income charge. So in that context, a ‘transfer of assets’ should be interpreted as a transfer that could give rise to such a charge.
This will primarily mean a transfer of assets to the employee, but also includes a transfer to a member of the employee’s family too.
Neither an employer contribution to an EFRBS, nor a transfer between EFRBS gives rise to a possible employment Income Tax charge on the employee. So there is no ‘qualifying benefit’ entitling the employer to a deduction.