UK: The Employee Benefit Trust ('EBT'): Down But Not Out?

In our briefing note, dated 22 December 2010 we discussed the draft Finance Bill 2011 clauses introduced on 9 December 2010 and posed the question, is the EBT dead? The draft clauses proposed the introduction of an income tax charge (under the PAYE system) and National Insurance Contributions ('NICs') where the trustee of an EBT earmarks, pays, transfers or makes available a sum or asset for a current, former or prospective employee which is, in essence, a means of providing reward or recognition in connection with employment. The majority of the new provisions will apply from 6 April 2011 with limited anti-forestalling provisions, operating from 9 December 2010.

The draft legislation was very broad in scope, on the face of it catching many situations, which were entirely commercial in nature and not at all intended to avoid or defer tax. In other respects, the intention of some of the draft clauses was unclear. We, along with many other professional firms and organisations, have sought clarity from HMRC on many points and they have responded with the publication on 21 February 2011 of some Frequently Asked Questions ('FAQs').

In short, HMRC recognised the need to amend the draft legislation to restrict its scope in some circumstances and clarify its meaning in others. The remainder of this note addresses how the FAQs deal with the questions raised in our 22 December 2010 briefing note.

Taxation of existing sub-funds

Under the original draft legislation there was a concern that income or gains arising to funds that had already been earmarked would be will be an additional earmarking. The draft legislation will now be amended to ensure that the receipt by an EBT of income or gains arising on funds or assets, which have already been earmarked, will not in and of itself amount to an additional earmarking. This will allow funds that are already earmarked to continue gross up tax-free.

Adding further funds to an EBT

It was unclear from the draft clauses whether merely adding funds to an EBT could create an income tax and NIC charge. The FAQs clarify the position by giving HMRC's view that merely adding funds or assets into an EBT will not give rise to a charge unless and until there is some further 'earmarking' of the trust's assets in relation to specified employees.

Funds already allocated to sub-funds

The draft clauses do not themselves make it clear whether failing to take steps to revoke an existing sub-fund appointment would constitute the taking of a 'step' of making the sub-fund available to an employee, thereby triggering a tax charge. HMRC's FAQ on this point is ambiguous but the implication is that mere inactivity on the part of the trustee will not trigger a tax charge: some further act of 'earmarking' would be needed.

Outstanding loans

The draft clauses were not clear as to whether loans made available to employees before 9 December 2010, which remain outstanding as at 6 April 2011, should remain outside the scope of income tax and NICs. The FAQs clarify that they will be outside the scope of the new rules, unless there is a drawdown of a loan on or after 9 December 2010.

Employee Share Ownership Plan Trusts (ESOPs)

In our briefing note of 22 December 2010, we highlighted a problem with many common ESOP arrangements, where the trustees of the ESOP set aside a number of shares in order to satisfy future exercises of share options granted by an employer. These arrangements can trigger a tax charge under the new rules (by contrast to a specific exemption where the option is granted by the ESOP trustees themselves, rather than the company).

The FAQs addressed this point in part by announcing that amendments would be introduced to the draft legislation to provide a further exemption. However, the criteria for qualifying for the exemption are restrictive. Unsurprisingly, one criterion is that the deferral or avoidance of tax must not be the main purpose or one of the main purposes of the arrangement. The criterion which may be the most difficult to fulfil in many instances is that the award must 'vest' no later than five years from the date of grant. Many share option plans and long term incentive plans ('LTIPs') have a ten-year life span on awards. That said, it is not clear what HMRC mean by 'vesting' in this context: with a share option in particular, there is commonly a distinction between the vesting of the option (ie the moment at which the number of shares which is subject to the option is finalised) and exercise (the moment at which the employee pays the exercise price and acquires the underlying shares).

Interaction with the FSA's Remuneration Code

Many financial services businesses are currently implementing the requirements of the FSA's Remuneration Code. The Code obliges some employers and encourages others to defer proportion of variable cash bonuses and to award some bonuses in the form of shares or share-like instruments. Many of these arrangements could be caught by the draft Finance Bill 2011 clauses, even without the use of an EBT.

The FAQs recognise that this was an unintended consequence of the new rules and announce that amendments will be introduced to exempt deferred rewards which satisfy similar qualifications as for share based awards held in ESOPs, discussed above.


The clarifications and announcements of amendments are to be welcomed, although, as always, the legislation itself, when finalised, will need to be examined carefully to ensure arrangements do not inadvertently fall foul of the new rules.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.