What are Employer Financed Retirement Benefits Schemes (EFRBS)

Updated: 9th November 2021

Understanding EFRBS and the 2019 loan charge

Employer Financed Retirement Benefits Schemes (EFRBS) are unregistered pension schemes offering retirement benefits to their members. As an unregistered pension scheme, an EFRBS does not qualify for many of the tax advantages of a regulated scheme such as the limited company being able to claim corporation tax relief on contributions, and any income and gains being exempt from tax. However, on the flip side the contributions to this type of scheme are not subject to income tax or National Insurance Contributions ('NICs'), nor does the company need to pay employer's NICs.

Additionally, the annual/lifetime limits applied to registered schemes don’t apply to an EFRBS. Funds can also be invested in any asset class, without restrictions.

These schemes were originally introduced to allow employees to increase their pension savings if they had reached the ‘earnings cap’ on their registered scheme. They also appeal to employees living overseas, or who plan to retire abroad, because they can be set up either in the UK or offshore.

However, HMRC is currently targeting these and other similar schemes such as Employee Benefit Trusts (EBTs) and Funded Unapproved Retirement Benefit Schemes (FURBS) which they regard as ‘disguised remuneration’.

How does an EFRBS work?

A discretionary trust is used as the vehicle for this type of pension scheme. An EFRBS pension represents a ‘promise to pay’ employees and their families remuneration in retirement, but without the employer funding it in advance, as happens with a registered pension scheme.

The employee makes regular payments into the scheme, and monies are invested without the same restrictions. Sub-trusts pay out the money to individual members, often at a lower rate of tax than would otherwise apply, and with no National Insurance contributions.

When benefits are paid (when the employee retires), an interest-free loan is provided, with no specific end date such that it’s only repaid on death from the deceased person’s estate.    

What are the main benefits of an EFRBS?

An EFRBS offers a range of benefits, including:

  • Flexibility: it’s an alternative home for retirement savings, offering greater freedom where investing funds is concerned.
  • Additional savings: employees can save over and above their annual/lifetime allowances, and are not restricted in the same way as with a registered pension scheme.
  • Retiring abroad: if any employees already work abroad, or are considering retiring outside of the UK, an offshore EFRBS provides an accessible place to save for retirement.

EFRBS structure targeted by HMRC

The government regard EFRBS as a disguised remuneration scheme, and as part of the Finance (No 2) Bill 2017 has introduced measures to tackle the issue of tax avoidance within this and other similar schemes.

Termed the 2019 loan charge, the new measures saw HMRC reviewing loans from as far back as 1999 and asking for them to be repaid or to make arrangements for the appropriate levels of PAYE and NICs to be collected by HMRC.

Individuals who had previously utilised, or were still utilising these schemes, were given a three year period following the 2016 Budget to either repay the outstanding loans or else come to a settlement agreement with HMRC. In many cases the settlement agreement did not impact the amount of unpaid tax HMRC asked for, but it did allow individuals to enter into a payment plan whereby the money owed could be cleared over a number of years.

The settlement opportunity period ended on April 5th 2019, and the 2019 loan charge came into effect. Any loans of this type which remain outstanding or do not form part of an existing settlement agreement will be taxed as income earned for the 2018/19 tax year. Any tax owed will need to be paid by the end of January 2020.

The importance of professional advice

As up to 20 years’ worth of loans are being caught up in these regulations, many are finding themselves faced with paying back staggering sums to HMRC and with only a relatively short amount of time to get these funds together. The prospect of bankruptcy or an alternative formal personal insolvency procedure is a very real possibility if individuals simply do not have the money to satisfy HMRC.

If you have been hit with a hefty tax bill due to outstanding Employer Funded Retirement Benefit Schemes loans and are worried about how you will be able to pay the amount due, Real Business Rescue can help.

Before you enter into any formal insolvency arrangement you need to ensure you are making the correct decision that best solves your current problems while taking into account your plans for the future. Your situation needs to be expertly assessed to ensure you are aware of the implications on you personally and also on any limited company you may have. Real Business Rescue’s team of licensed insolvency practitioners are on hand to provide the expert help and advice you need during this undoubtedly stressful time.

With 100+ offices around the country, we’re able to arrange a same-day consultation free-of-charge to discuss your needs. Call our team today on 0800 644 6080 for immediate help and guidance.

Keith Tully


0800 644 6080
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