Supreme Court Backs HMRC Over Rangers Tax Case

5 July 2017, 11:16

Ibrox Stadium

The Supreme Court has ruled in favour of Her Majesty's Revenue and Customs following a long-running dispute over a tax avoidance scheme run by Rangers Football Club.

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.

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

About £50 million was paid to dozens of Rangers players and staff through an EBT scheme administered by the Murray Group, then majority shareholder of the Glasgow club, from 2001 to 2009. The club contended these should be classified as loans but HMRC insisted they were taxable earnings.

The result will mean the creditors of RFC2012 will receive less money from the pot collected by liquidators BDO, as HMRC will now be owed even more money. Rangers, then run by Craig Whyte, went into administration in February 2012 over a separate tax debt and the tax authority rejected a creditors agreement in June of that year.

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 crackdown in legislation enacted in December 2010.

In a written judgment, the judges 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.''

Former Rangers chairman Sir David Murray expressed his disappointment with the verdict.

In a statement issued to the Press Association, Sir David said: "I am hugely disappointed that the Supreme Court has upheld the decision of the Court of Session, reversing the decisions of the specialist tax First Tier Tribunal and the Upper Tribunal in this matter.

"The decision runs counter to the legal advice which was consistently provided to Rangers Football Club, that on the basis of the law and legal precedent at the time, the contributions made to the trust were not earnings and should not be taxed as such.

"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.

"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.

"I have not had the opportunity to discuss the decision in detail with Tax Counsel, but will do so, particularly in light of proposed legislation, which will alter the tax position applying to loans made by trusts to employees. Once the impact has been assessed, a further statement will be issued.''

HMRC has "encouraged'' companies which used similar schemes to settle tax bills in light of the ruling. A settlement opportunity in light of the 2010 legislation ran out in July 2015 and other firms could now be liable for major sums.

In a statement, HMRC said: "The unanimous decision of the Supreme Court supports our view that Employment Benefit Trust avoidance schemes simply do not work.

"This decision has wide-ranging implications for other avoidance cases and we encourage anyone who's 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.''

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