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Companies often establish Employer Financed Retirement Benefit Schemes (EFRBS) to provide retirement or other benefits to senior executives—particularly when contributions to registered pension schemes would exceed annual allowances, or when an executive is expected to retire outside the UK.

However, EFRBS arrangements can also arise unintentionally. For example, benefits provided in connection with an employee’s death, past service, or a change in their role may fall within the EFRBS regime—even if the employer is unaware. This can lead to overlooked tax and reporting obligations, as EFRBS are governed by a separate regime outside the standard employer year-end reporting process.

What Qualifies as an EFRBS?

An EFRBS is broadly defined as any arrangement that provides a lump sum, gratuity, or other benefit (excluding most pension payments) to or in respect of an employee or former employee. This includes retirement and death-related benefits.

Importantly:

An EFRBS does not need to be formally established (e.g., via a trust).
There does not need to be a prior agreement between employer and employee.

It can arise from:

A board decision,
A delegated authority or internal policy,
A common practice of providing benefits to a class of employees.

This means that even informal or one-off benefit payments—such as medical support to a widow—could trigger EFRBS obligations.

Key Compliance Obligations

Registration

An EFRBS must be registered with HMRC by 31 January following the end of the tax year in which it becomes active. This applies when:

The employer first contributes to the scheme, or
Relevant benefits are first provided (excluding most pension payments).

Depending on the structure, the obligation to register may fall on the scheme trustee, manager, or the employer. If a trust is involved, it may also need to be registered with HMRC’s Trust Registration Service.

Reporting and PAYE

Relevant benefits provided under an EFRBS are generally taxable as employment income. If paid in cash or readily convertible assets, they are subject to PAYE.

Details of these benefits must be reported to HMRC by 7 July following the end of the tax year. While there is no legal requirement to issue benefit statements to recipients, doing so is considered good practice to support their self-assessment obligations.

What Should Employers Do?

To ensure compliance, employers should:

Identify all EFRBS arrangements that came into operation during the tax year.
Register any new EFRBS with HMRC by the deadline.
Report all relevant benefits and apply PAYE where required.
Review past years for any missed registrations or reporting obligations and correct them promptly.
Implement controls to monitor future EFRBS activity and ensure timely compliance.

Why It Matters?

Failure to comply with EFRBS obligations can result in significant and unexpected tax liabilities, as well as penalties for late registration or reporting. Employers have a governance responsibility to ensure that all relevant schemes are properly managed—even if the formal obligations fall on a trustee or scheme manager.

Given the broad scope of what constitutes an EFRBS, seeking specialist advice is strongly recommended.