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Employers open to risk of reporting errors on contingent assets

News analysis: Employers have been told to approach the use of certain contingent asset funding deals with caution, after the Financial Reporting Council said solvency improvements could be cause for investigation.

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There has been growing interest in Scottish limited partnerships from employers as a tax-effective way of reducing long-term risk within their scheme.

Barriers to setting up SLPs 

  • The vehicle may not be as tax-efficient as first thought;
  • The potential cost around setting one up;
  • Disagreements between the company and trustees – the latter may prefer an alternative method of lowering liabilities.

When an SLP is established, assets owned by the employer are transferred to the vehicle, which the scheme has an interest in. This asset generates an income that is then available to the scheme.

But the FRC has expressed concern that some of these structures are set up to transform a company’s recovery payments into an equity instrument that artificially inflates solvency.

Emma Powell | January 27, 2014

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