UK Employee Benefit Trusts (EBTs): A Complete Guide for 2026/27
Employee Benefit Trusts have a legitimate legal basis but became notorious as a vehicle for disguised remuneration schemes that HMRC has since clamped down on hard, including through the loan charge. This guide explains what an EBT actually is, how it was historically misused, and the current rules anyone affected needs to understand.
An Employee Benefit Trust (EBT) is a trust an employer sets up for the benefit of its employees, and sometimes their family members, into which the employer contributes money or assets. Independent trustees then hold and manage those funds under the trust's terms, and can make payments, loans or other benefits to employees named as beneficiaries, subject to the trust deed and trustees' discretion.
Historic Use for Remuneration Planning
In the past, some employers used EBTs as part of remuneration planning: rather than paying salary or bonuses directly (which attract Income Tax and National Insurance), the employer contributed funds to an EBT, and the trust then made "loans" to employees or directors. Because loans were, at the time, not treated in the same way as earnings for tax purposes, this structure was used to reduce or defer the tax and National Insurance that would otherwise have been due on what was, in economic substance, payment for work.
Disguised Remuneration Rules
HMRC introduced disguised remuneration legislation specifically to counter arrangements like these, taxing certain trust-based and third-party payments — including many EBT loan arrangements — as if they were ordinary employment income, regardless of how the scheme was legally structured. This significantly closed off the tax advantage that EBT loan arrangements had previously offered.
The Loan Charge
The loan charge is a further HMRC measure that treats certain outstanding loans made under disguised remuneration schemes, including historic EBT arrangements that were never repaid, as taxable income in a specified tax year. This can create a substantial Income Tax liability for the individual who received the loan, calculated on the total outstanding balance, and its scope covered loans made over a number of previous years, which made it highly controversial when introduced.
Legitimate Uses of EBTs Today
Not every EBT is or was a tax avoidance vehicle. EBTs are also used for genuinely legitimate purposes, such as holding shares as part of an employee share ownership plan, facilitating employee benefit arrangements that are properly reported and taxed, or supporting all-employee incentive structures, entirely separate from the historic disguised remuneration schemes that attracted HMRC's anti-avoidance action.
If You Are Affected by a Historic EBT
Anyone who believes they may have an outstanding EBT loan or other disguised remuneration exposure should seek independent professional tax advice as soon as possible, and consider any HMRC settlement opportunities that may be available, since interest and potential penalties can continue to accrue the longer the position remains unresolved. Attempting to set up a new arrangement specifically to disguise remuneration today is very unlikely to withstand HMRC scrutiny.
An Employee Benefit Trust (EBT) is a trust set up by an employer for the benefit of its employees (and often their families), into which the employer can contribute funds or assets that trustees then hold and can distribute or lend to beneficiaries under the trust's terms.
Are Employee Benefit Trusts illegal?
No, EBTs themselves are a legitimate legal structure and are still used for genuine purposes such as employee share schemes. What HMRC has clamped down on is using EBTs specifically to disguise what is really employment remuneration — for example, paying "loans" instead of salary or bonuses to avoid Income Tax and National Insurance.
How were EBTs historically used for tax planning?
In the past, some employers contributed funds to an EBT, which then made loans to employees or directors instead of paying salary or bonuses directly. Because loans were not (at the time) treated as taxable earnings in the same way as salary, this was used to reduce or defer Income Tax and National Insurance liabilities on what was, in substance, remuneration for work done.
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What are HMRC's disguised remuneration rules?
The disguised remuneration rules are anti-avoidance legislation designed to tax certain third-party and trust-based remuneration arrangements, including EBT loans, as if they were employment income when they were used to reward employees while avoiding Income Tax and National Insurance, regardless of how the arrangement was legally structured.
What is the loan charge?
The loan charge is a specific HMRC measure that treats certain outstanding "loans" made through disguised remuneration schemes, including many historic EBT arrangements, as taxable income in a particular tax year, generating a significant Income Tax (and sometimes National Insurance) liability for the individual who received the loan, even though it was originally structured as a loan rather than salary.
Can I still set up a new EBT for tax avoidance today?
Attempting to use an EBT specifically to disguise remuneration and avoid Income Tax and National Insurance is very unlikely to work under current HMRC rules and is likely to be challenged, potentially resulting in significant tax, interest and penalties. Anyone considering an EBT-based arrangement should take independent professional tax advice and expect significant HMRC scrutiny.
Are all EBTs used for tax avoidance?
No. EBTs are also used for entirely legitimate purposes, such as holding shares for employee share ownership plans or facilitating genuine employee benefit arrangements that are properly taxed, separate from the historic disguised remuneration schemes that have attracted HMRC action.
What should I do if I have an outstanding EBT loan from a previous employer?
If you believe you may be affected by the loan charge or disguised remuneration rules because of a historic EBT arrangement, you should seek independent professional tax advice promptly and consider using HMRC's settlement opportunities where available, since interest and penalties can increase the longer matters remain unresolved.
Did the loan charge apply retrospectively?
The loan charge legislation captured outstanding loans made under disguised remuneration arrangements going back a number of years, which was controversial precisely because it affected loans made well before the loan charge itself was introduced. The detailed scope, review outcomes and any settlement terms should be checked against current HMRC guidance.
Where can I get help if I am worried about a disguised remuneration scheme I used?
HMRC provides specific guidance and contact routes for individuals affected by disguised remuneration schemes, including the loan charge, and independent tax advisers experienced in this area can also help assess your position and any options for settling with HMRC.
Disclaimer: This guide is general information, not tax or legal advice. Disguised remuneration and loan charge rules are complex and carry serious financial consequences if you are affected. Always check the current position at gov.uk and seek independent professional advice for your specific situation.
