Around 2,000 British employees of the US bank JP Morgan must pay income tax and national insurance contributions dating back to 2005 after falling foul of disguised remuneration laws..
The bank ran an employee benefit trust (EBT) for the staff – which HM Revenue & Customs has declared as illegal.
In a letter to the employees, HMRC claims the scheme was ‘disguised remuneration’ and an attempt to manage income tax so they paid less on their salaries..
All the staff have to pay up to 40% tax plus 1% national insurance by December 7 or face further penalties.
The bank has agreed to pay 12.8% employer national insurance due on the settlements agreed by staff.
Neither JP Morgan nor HMRC have revealed just how much money is involved in the EBT scheme.
Other banks face action
In a letter to JP Morgan’s tax department in September, HMRC stated: “As you are aware, the government put in place legislation in 2011 to put beyond doubt the tax treatment of employee benefit trust arrangements.
“In addition, HMRC continues to robustly challenge the taxation treatment of such arrangements under previous legislation.
“In this context and where we are unable to agree a settlement HMRC will continue to formally progress its enquiries into the taxation treatment of the trusts.”
HMRC has already tried to thrash out settlement terms with more than 2,000.
JP Morgan is not the only bank to feel the wrath of HMRC over EBTs – UBS and Deutsche Bank have also faced action.
£1.7 billion ‘lost’ in EBT schemes, says HMRC
HMRC reckons about £1.7 billion of tax and NI contributions were lost in EBTs, including the scheme run by JP Morgan.
The ruling impacts both current and former British JP Morgan employees, regardless of whether they are expats or UK residents.
JP Morgan has set up loans and mortgages to help staff owing more than £250,000 to HMRC raise the cash in time to beat the deadline.
The bank disagrees the offshore payments were salary, but has agreed to settle to avoid a costly legal challenge.
JP Morgan said: “Our employee trust has always been transparent to HMRC, and its independent trustee has consistently paid taxes in accordance with UK tax law.
“In addition to taxes paid by the trust, JP Morgan has paid, on average, more than £1 billion of corporation and payroll taxes to HMRC annually over the past decade.”
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