A scheme using Employee Benefit Trusts (EBTs) as a means of remunerating directors and staff has been defeated by HMRC in a recent Supreme Court case.

Such schemes had been used by many employers to avoid PAYE and national insurance contributions (NICs) and involved complicated trust structures and “loans” to the employees. The Supreme Court judges have ruled that these loans were in substance employment earnings when payments were made to the trusts and are thus ineffective in avoiding PAYE and NICs.

The anti-avoidance rules have also been strengthened in the latest Finance Act with the intention of blocking the use of similar schemes including the transfer of the liabilities to the employee.

Many employers were awaiting this decision and must now decide whether or not to settle with HMRC for the outstanding tax due. If you have been involved in such schemes please contact us to discuss what action you now need to take.

Sick pay for zero hours contracts?

You have a number of employees who are engaged on ‘zero hours’ contracts, and thus only work as and when required. If they fall sick, will SSP be payable?

To fall within the SSP scheme, the individual must be an employee for the purposes of Class 1 National Insurance Contributions.  There is no room to discuss what an employee is here, but suffice it to say that simply being a ‘worker’ is not sufficient – to a self-employed bricklayer will not qualify, even if required to give personal service.


The employee will only qualify if they have average earnings at least equal to the NICs Lower Earnings Limit (£113 per week in 17/18).

Average earnings are calculated over the 8 weeks prior to the initial commencement of the Period of Incapacity for Work (PIW).

Assuming they meet this condition, then the trickier bit is working out how much to pay them.  SSP is paid from the 4th Qualifying Day (the first 3 being Waiting Days), and to this end, it is necessary to decide which are the Qualifying Days (QDs).

Qualifying Days

 If there is an agreement between the employer and employee as to the Qualifying Days then there is no problem, but usually, there won’t be – so here the legislation steps in.  Incidentally, it is not permitted to agree that there are no QDs in a week, or that sick days don’t count or any other such devious arrangement.

Regulation 5(2) of the Statutory Sick Pay (General) Regulations 1982 gives 3 possible alternatives…

(2)          Where an employee and an employer of his have not agreed which day or days in any week are or were qualifying days the qualifying day or days in that week shall be—

(a)    the day or days on which it is agreed between the employer and the employee that the employee is or was required to work (if not incapable) for that employer or, if it is so agreed that there is or was no such day,

(b)    the Wednesday, or, if there is no such agreement between the employer and employee as mentioned in sub-paragraph (a),

(c)     every day, except that or those (if any) on which it is agreed between the employer and the employee that none of that employer’s employees are or were required to work (any agreement that all days are or were such days being ignored).

So, in essence:

(a) will apply where there is a rota or schedule so that it is known in advance which days the employee was due to work; those agreed days will be the days for which SSP is potentially payable

(b) will apply where there is a rota or schedule so that it is known in advance that the employee was not due to work that week at all; there will only be one Qualifying Day in the week, and that day will be Wednesday

(c) will apply if there is no rota or schedule in place; every day will be a Qualifying Day for SSP.

It is, therefore, possible for the QDs to change from week to week.


A client has acquired a buy-to-let property and will be carrying out some repairs before taking on tenants. Will the repair costs qualify for a tax deduction?

This is a fairly common question which is often fraught with difficulty. The answer very much depends upon the facts. The discussion which follows relates to genuine repair and maintenance costs and not to works which result in a significant improvement over the asset’s original condition. The cost of such works will invariably be treated as capital.

It is generally accepted that the cost of routine repairs and maintenance, for example redecorating, carried out after a property acquisition is a revenue cost. Similarly, work to repair or reinstate a worn or dilapidated asset is usually deductible as a revenue expense and HMRC accept that carrying out repairs shortly after acquisition does not necessarily point to a capital expense. However, they also point out that if buying a property in good condition is capital then the combined cost of buying a dilapidated property and putting it into good condition must also be capital. So, in their view, the cost of repairs carried out after buying a property which was not in a fit state to let until the repairs had been carried out is a capital cost and even more so if the price paid for the property clearly reflected its dilapidated state.

This can perhaps be contrasted with the situation where the property is capable of being used in its current state but the new owner wishes to carry out some repair and maintenance work to appeal to a particular class of tenant, in which case the expenditure is, arguably, revenue in nature and deductible.

A reminder about ‘TRIVIAL BENEFITS’

I have read that it is now possible to pay staff tax-free using small value benefits in kind. Is this correct?

The “Trivial Benefits” rules have been introduced for the tax year 2016-17 and onwards. In general terms, no income tax charge arises on a benefit provided to an employee (or member of an employee’s family or household) if four conditions are met:

  • The benefit is not cash or a cash voucher
  • The cost of providing the benefit does not exceed £50
  • The benefit is not provided as a result of a salary sacrifice arrangement
  • The benefit is not provided in recognition of services provided by the employee or in anticipation of such services.

There is an additional rule for directors and their families which imposes a £300 annual limit. This £300 limit might lead one to suppose that non-directors will be able to enjoy tax-free a series of small benefits totaling at least £300 in a tax year and possibly even more. This is a situation where the fourth of the conditions listed above needs careful consideration. HMRC have in the past in certain circumstances taken the view that where some form of non-contractual award is made to employees so regularly that employees develop an expectation of receiving such rewards then the rewards become, in effect, contractual payments for services rendered and are therefore taxable. It will be interesting to see how this particular area of tax law develops.

Employers may also wish to consider potential employment law implications.


Following a deed of variation entered into by the beneficiaries of a will or intestacy the resultant dispositions of assets are deemed to be those of the deceased, but what happens if a surviving joint tenant joins in the variation and gives up his or her share in the relevant asset?

The relevant legislation refers to “dispositions whether effected by will, under the law relating to intestacy or otherwise”. HM Revenue & Customs take the view that the words “or otherwise” have the effect of including in the variation rules the automatic inheritance of a deceased owner’s interest in a jointly held asset. It therefore follows that a variation by the surviving joint owner is not a transfer of value for inheritance tax purposes. Similar rules apply for capital gains tax purposes.



At a recent discussion at a pub, my friend told me they are paying 60% tax.  I didn’t believe him and decided to look it up. None of the tax tables refer to a 60% rate. Can you please explain?

The 60% rate is an effective rate rather than an actual rate. Let us suppose you are a company director considering the possibility of taking a bonus. Assuming they have no other income, if his total pay is currently £100,000 he has taxable income of £88,500 after deducting the personal allowance of £11,500. The personal allowance is reduced by £1 for every £2 of income above the income limit of £100,000.  So if he takes a bonus of £23,000 the personal allowance is reduced to zero and his taxable income is £123,000.


A client owns an investment property and pays higher rate tax on the rental income but her husband has some unused personal allowance and fully available basic rate band. It would make sense for him to have some of the income but she wants to leave the property on her death to her children from her first marriage. Is there anything she can do?

With some exceptions, there is a general presumption that spouses and civil partners who jointly own property own it, and the income which flows from it, on a 50:50 basis. This is why couples who wish to share and be taxed on income otherwise than on a 50:50 basis have to effect a change to the beneficial ownership of the asset and then make a declaration to HMRC using Form 17.

This 50:50 rule can work to the client’s advantage. If she transfers the investment property into joint ownership with her husband so that she retains beneficial ownership of 99% of the property and her husband has 1% then, in the absence of a Form 17 declaration, they will be taxed on the income on a 50:50 basis but she is still in a position to pass on 99% of the value of the property to her children.