By Max Clarke

Online accountant Crunch.co.uk has been inundated with calls from worried contractors after the Government announced it was closing a well-used tax loophole.

Contractors using Employee Benefit Trusts (EBT) as a means of tax-avoidance will no longer be able to use them from April 6 2011.

EBT arrangements usually work as follows. A contractor enters into an arrangement with a service provider that promises higher take-home pay. These accounting services operate via offshore accounts and umbrella companies which allow them to operate around the law. The arrangement is that contractors get paid a loan, via the EBT, which never has to be paid back. Many of the schemes are based on the Isle of Man or Guernsey.

However, new legislation to be introduced in the Finance Bill 2011 will make EBTs count as a payment of employment income and the employer will be required to account for PAYE accordingly. This will make the umbrella companies which facilitate EBTs to the self-employed obsolete.
Those currently on such schemes will quickly need to find alternative accounting solutions that offer tax efficiency and full compliance with HMRC. One option is to register as a Limited Company.

“We have received hundreds of calls from contractors who are really worried about the situation and are choosing to go down the Limited Company route,” said Darren Fell, Managing Director at Crunch.co.uk. “Many had been Limited before and had moved away due to the administrative burden associated with running a Limited Company. It's good to see they recognise how Crunch.co.uk has changed all of this to make it incredibly simple and provide the ultimate assurance that the Limited route is the most legitimate tax saving option for them.”