Definition of employer-financed retirement benefits scheme

Employer-financed retirement benefits schemes (Efrbs) are discretionary trusts set up by an employer to provide benefits for an employee.  They have been promoted to earners in the top tax bands looking for ways to reduce their immediate tax deductions on earnings and bonuses. Tax on the benefits is only payable in the year of receipt of the benefit, providing an effective deferral of income tax.  [1]

Example

There are different types of tax avoidance schemes, such as K2 - the Jersey-based tax scheme.

This is where an individual resigns from his/ her job in the UK and becomes an employee of an offshore company such as K2. [2]

The individual receives a minimal salary from that company. K2 seconds (or hires out) the employee to his/ her original employer, and the original employer pays a fee to K2. The offshore company, via an employee benefits trust it sets up, lends this money to the individual.

It has been described as an aggressive Efrb, but some experts say the arrangements are not the same. [3]

So the individual take part of their income in the form of a loan and pays a lower amount of tax on the minimal income and not the loan.

The British comedian Jimmy Carr's use of the scheme to reduce his taxes was exposed in June 2012.  He announced that he is no longer involved with the scheme.

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