Businesses who have used Employee Financed Retirement Benefit Schemes (EFRBS) arrangements to offset corporation tax (CT) without any taxable benefit to employees are being given an opportunity to settle open enquiries into the use of such arrangements.

HMRC has opened up a settlement opportunity until the end of year and is writing to employers offering them a chance to settle open enquiries into the use of these arrangements by agreement, without needing to engage in litigation. The resolution opportunity applies EFRBS arrangements entered into before 6 April 2011.

HMRC's view is that CT deductions claimed by employers should be disallowed. On the other hand, if an employer can show that the EFRBS was set up to benefit its employees, and contributions to an EFRBS are in reality, payments of earnings to employees, then HMRC considers that from the date contributions were allocated to an individual, they should be regarded as remuneration and PAYE and National Insurance contributions (NICs) will be due on these payments.

Alastair Kendrick, tax director at MHA MacIntyre Hudson, says: 'It is clear that employers who have difficulties in this regard will need to initially take a step back and decide which option is the most relevant given their tax position. They should not wait to react and seek advice as soon as possible to settle with HMRC.'

Those who have EFRB arrangements in place need to consider whether they want to take advantage of this window. HMRC is giving employers two possible routes for settlement:

Option 1: No deduction is due from CT profits for contributions made to the EFRBS until relevant benefits are paid out by the EFRBS, or

Option 2: PAYE and NICs are payable on the contributions made to the EFRBS. A deduction can be made from CT profits for contributions made to the EFRBS.

Employers have until 31 December 2013 to indicate whether they wish to take advantage of this opportunity and, if they do, any settlement between them and HMRC will be concluded by 30 June 2014. Employers can register their interest to settle by either calling HMRC or completing and returning an EFRBS expression of interest form available on HMRC's website.

Those who do not wish to settle by agreement, or do not reply, will be issued closure notices and HMRC will continue to progress their enquiries with a view to litigation.

HMRC has issued FAQs to provide employers with information about the general framework to settle EFRBS liabilities.

More details are available from HMRC at HERE