Contractors have been warned over the use of Employee Benefit Trusts (EBT) to maximise take-home pay by Rob Crossland, chief executive of umbrella company Parasol.

Crossland’s warning follows this week’s announcement by the HM Revenue and Customs (HMRC)  that it is to invest £900m to tackle non compliance in the tax system.

Crossland says: “The chief secretary to the Treasury has used some strong language in his announcement today that £900m has been made available to HMRC to tackle non compliance in the tax system and I would suggest that there are some contractors out there who currently rely on EBTs to maximise their take-home pay, who should now be feeling extremely nervous.”

An EBT is a legal arrangement where one person own assets on behalf of someone else, the most common of which are pension funds, charities and family trusts.

Crossland continues: “Contractors in the UK are perfectly entitled to manage their finances as they see fit, and those who are less averse to risk may still find EBTs an attractive prospect. However, I would encourage all contractors looking to maximise their take-home pay in view of this to give careful consideration to today’s announcement and the impact it may have on offshore schemes.

“If something sounds too good to be true then it usually is and today’s statement from HMRC would suggest that the days of EBTs are further numbered.”