Is your Employee Benefit Trust fit for purpose, or is it time for a review?06 Aug 2018
Ocorian Director of Corporate Services John Daughtrey urges companies to check their Employee Benefit Trusts on a regular basis to ensure they remain compliant and retain value.
When it comes to corporate financial administration, the Employee Benefit Trust (EBT) tends to be left alone. Research happens, it gets set up, and then it is rarely reviewed for suitability but left in place for years and years, only to be changed if something horrible happens.
Yet, left alone an EBT can accrue fees, fall out of reporting compliance and not operate as intended.
An EBT is a trust established either in the UK or offshore, set up by a company to hold cash and other assets, such as shares. In operation since the mid-1980s, these discretionary trusts are extremely flexible and continue to be used by companies for legitimate remuneration and tax planning structures. That danger remains, though: an EBT should not be set up and forgotten about. Here are five questions to ask yourself about your EBT.
Is it fit for purpose?
Times change, companies change - and what makes an enticing incentive changes, too. What made a plan best in class in the 1990s may now be totally out of touch with the modern market. Likewise, accountabilities and responsibilities should be analysed to ensure the trust is optimally structured.
Is it run efficiently?
The structure chosen for your EBT will depend on the advice you were given at the time it was set up. However, this does not mean you are set up efficiently now.
For example, in the 1990s a popular way to structure an EBT was to establish a company with the sole purpose of acting as a trustee to the EBT. Whilst this is still an acceptable way to operate, moving away from this type of structure and appointing a corporate trustee brings with it a number of benefits. These include providing an extra layer between the EBT trustee and the settlor company, enhancing the EBT trustee's independence from the settlor company and also removing the regulatory obligations of the company filings, as well as the associated operating costs.
It's worth reviewing your structure on a regular basis to ensure it remains in sync with the company's needs.
Is it compliant?
This is the big question in today’s market, and one you can’t afford to ignore. In some cases there is the need for FATCA and CRS reporting - another attempt by regulators to bring more transparency - and MIFID II, the revamped version of the Markets in Financial Instruments Directive. This was introduced in late 2017 to offer greater protection for investors and inject more visibility of all asset classes, plus related market transactions.
In addition, part of the UK’s implementation of the fourth Anti-Money Laundering Directive last year included a UK trust register. The regulations apply to “relevant trusts” and require certain information be disclosed to HMRC.
And, of course, the ever-present GDPR brings a need to re-evaluate how personal data is held and used.
More recently, the UK Government has implemented legislation known as the 'Requirement to Correct', which requires any undeclared offshore tax liabilities to be disclosed to HMRC before 30 September 2018. Are you sure your EBT is in compliance with all of this?
Could there be synergies in consolidating trusts?
Finally, consider your own company’s experience since you set up that EBT. Have you merged? Been bought? Grown? Folded some operations? Company experiences and organisational structures change over the years, which can again impact the performance of your EBT. It may be that in times of merger or acquisition, your own EBT was superseded by another EBT. Could you enjoy synergies by consolidating multiple EBTs into one super-EBT? It’s a conversation worth having with your provider.
Is your EBT fit for the new market?
We’re living in an increasingly regulated and automated world. EBTs set up 20 years ago - even 5 years ago - are likely to be not fit for purpose in this era. Ensure your EBT is up to scratch and ready to perform by regularly checking in and asking yourself these questions. It can help to get an impartial third party to check for you; discover more about Ocorian's EBTs and how we may be able to help here.