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Supreme Court ruling

Firms face crackdown after Rangers tax case

Rangers Football Club: victory for HMRC.

Rangers lost their legal battle with the taxman today when the Supreme Court ruled in favour of HM Revenue and Customs over a tax avoidance scheme run by the club’s former owners.

More than £47 million was paid to players, managers and directors between 2001 and 2010 in tax-free loans.

However, HMRC made the argument that the payments were earnings and should be taxable.

Lord Hodge announced in court that five Supreme Court judges had unanimously dismissed an appeal by the liquidators of RFC2012, the company formerly known as Rangers Football Club before its financial collapse in 2012.

The decision is not expected to have any material or financial impact on Rangers now as the club is owned by a different company.

HMRC had lost two earlier tribunal hearings over the Employee Benefit Trust scheme before a ruling in their favour in Edinburgh’s Court of Session in November 2015.

Liquidators BDO were then allowed to appeal to the Supreme Court in London as the ruling has implications for future cases.

The result is a major victory for HMRC in its attempts to recoup tax from thousands of other companies which ran EBTs and similar schemes, which were the subject of a tightening of legislation at the end of 2010.

HMRC could now issue “follower notices”, which would demand payment from companies who ran similar schemes, with some football clubs south of the Border falling into this category.

A settlement opportunity in light of the legislation crackdown expired two years ago and other firms could now be liable for major sums.

The ruling is in relation to Murray Group companies, including the liquidated company RFC 2012, and not the current owners at Ibrox. The EBT scheme was administered by the Murray Group, then majority shareholder of the Glasgow club, from 2001 to 2009.

The result will mean the creditors of RFC 2012 will receive less money from the pot collected by liquidators BDO, as HMRC will now be owed more money.

Former Rangers chairman Sir David Murray said he was “hugely disappointed” with the verdict, adding: “It should be emphasised that there have been no allegations made by HMRC or any of the courts that the club was involved in tax evasion, which is a criminal offence.

Rangers: Supreme Court decision.

“The decision will be greeted with dismay by the ordinary creditors of the club, many of which are small businesses, who will now receive a much lower distribution in the liquidation of the club, which occurred during the ownership of Craig Whyte, than may otherwise have been the case.”

An HMRC statement said: “This decision has wide-ranging implications for other avoidance cases and we encourage anyone who has tried to avoid tax on their earnings to now agree with us the tax owed.

“HMRC will always challenge contrived arrangements that try to deliver tax advantages never intended by parliament.”

Rangers liquidators BDO said it believed taking the case to the Supreme Court had been the correct course of action “given the significance of the matter”.

The judges’ written findings said: “The sums paid to the trustee of the Principal Trust for a footballer constituted the footballer’s earnings. The risk that the trustee might not set up a sub-trust or give a loan of the sub-trust funds to the footballer does not alter the nature of the payments made to the trustee of the Principal Trust.

“The discretionary bonuses made available to RFC’s employees through the same trust mechanisms also fall within the tax charge as these were given in respect of the employee’s work.

“Payment to the Principal Trust should have been subject to deduction of income tax under the PAYE regulations.”

What are the implications of the verdict?

Lord Hodge said that the appeal raised a “fundamental question about the nature of the income tax charge on employment income” but he was ultimately very clear in his view that “the sums paid to the trustee of the Principal Trust for a footballer constituted the footballer’s emoluments or earnings.”

Colin Ben-Nathan, chairman of the Chartered Institute of Taxation (CIOT) Employment Taxes sub-Committee, said: “We understand that HMRC have a large number of enquiries ongoing into EBTs at the moment and they will therefore feel vindicated by this decision. 

“Whilst many employers have already settled with HMRC, for those that have not it is likely that HMRC will now issue “follower notices”3 where they consider that the circumstances sit on all fours with Rangers.  These notices will require employers to pay up the tax or face a penalty if they fight on but lose in the courts, neither of which choices will be particularly appealing after the Rangers decision.”

He added that: “This judgement demonstrates that the courts are taking an increasingly tough line on tax avoidance, adopting a purposive approach and certainly not considering themselves hidebound by a literalist approach to the law.  So taxpayers who cross the line on avoidance do so at their peril.”

Paul Noble, tax director at legal firm Pinsent Masons, said: “The decision of the Supreme Court is not altogether unexpected and brings to a conclusion this long-running battle over the taxability of remuneration paid through the use of Employee Benefit Trusts (“EBT”).  It is a decision that HMRC will be delighted with and will cite extensively in their continued war on tax avoidance.

“What is perhaps more surprising is the clear backing of the judges in taking a purposive view of the relevant legislation rather than the narrower interpretation taken by the taxpayer and its advisers. 

“HMRC will undoubtedly seek to maximise the use of this decision in other EBT cases that are yet to settle. 

“Whilst there had been a feeling that other cases would be able to be distinguished from this one on their facts, the Supreme Court’s backing of a purposive view of the legislation makes this far less likely, particularly following the comment in the judgement that “the trustee of the Principal Trust is the person in receipt of the emoluments or earnings and payment to it should have been subject to deduction of income tax”. HMRC will argue that such principle can be applied to almost all such schemes. 


“Employers that have used EBTs to remunerate which remain unsettled with HMRC should seek advice on the consequences of this decision for them.”

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