Rangers win Employee Benefit Trusts tax case

A first-tier tribunal has ruled that payments made to players and staff at Rangers Football Club in a contentious tax scheme were not illegal.

The corporate entity that formerly housed Rangers, which is now in liquidation, had the scheme in place between 2001 and 2010 to pay £47.65m to players and staff. It argued that the payments were loans rather than actual earnings and not subject to tax.

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Comments

HMRC abuse of money, power and process...    2 thanks

markfd | | Permalink

...so as I recollect (not being a Rangers fan by the way), the trigger for the administration and subsequent liquidation was HMRC telling Craig Whyte that even if they lost the tribunal they would carry on appealing indefinitely.  So irrespective of what the judgement said, HMRC would continue to use public money and resources to attack Rangers.  Frankly I have always found this behaviour of HMRC totally unacceptable which they simply use, in my opinion, to unlawfully bully small businesses into submission.  In this case (not a small business obviously) it clearly meant that no-one in their right mind would recapitalise Rangers.

Unacceptable HMRC conduct.

HMRC within their rights    3 thanks

J Lessels | | Permalink

Regardless of whether the scheme was legal, Rangers have clearly been playing very hard ball with HMRC. They can't expect HMRC to wear kid gloves, when dealing with tax avoidance. Big boys games, big boys rules.

You can imagine the contract talks...

justsotax | | Permalink

player - so I want £20k per week....

Rangers - you can have that but you will get it in the form of a loan....

player - but if it is a loan won't i need to repay it....

Rangers - in theory yes...but we will ensure you never have to repay it...

player - but still sounds risky!?

Rangers - you will have a tax rate of 2% instead of 50%....

player - where do i sign?

Compensation

hiu612 | | Permalink

Do readers think that once this case has escalated to a more senior court, if Rangers eventually win they can / will sue HMRC for putting them into administration over a debt which proved not to be payable? Presumably there is economic loss for which the club could be compensated if this were the case and they were successful.

HMRC have every right to go    1 thanks

liam@adplus | | Permalink

HMRC have every right to go after tax that is due if they deem it is payable. Whether they take it to the first tier, second tier or wherever, if they believe they can prove the tax is due, why not?

We do it with clients when money is due, HMRC may not be a business but with so much to collect I understand why they go after the big ones, my problem with HMRC is they try to go after the little guys first!!

The article says: "The    1 thanks

cmg | | Permalink

The article says: "The liquidators, BDO, have also said they are reviewing the tribunal's decision closely so as to determine the impact on the liquidation."

Does this mean that, with with the payments now having been officially proved to have been loans, the liquidators will now seek to recover all those loans, or at least those of them that are not time-barred?

 

dav0512 | | Permalink

 

Not entirely sure but if the loans  to the players were paid from the Trust I don’t see how BDO could claim repayment. The money paid to the trust from the company is not a loan?

 

You have misunderstood the    2 thanks

georgelewislimited | | Permalink

You have misunderstood the situation.

HMRC didn't put the company into administration, the directors did that themselves. It's true that, had they not done so, HMRC would have done so. However, that was over PAYE which had been unpaid for over 9 months. The Big Tax Case, as it has become known, had nothing to do with the decision to put the company into administration.

 

I have read a fair chunk of    1 thanks

georgelewislimited | | Permalink

I have read a fair chunk of the 145 pages of the FTT judgement. Whilst I understand that the mainstream media are coming to conclusions based on little specialist knowledge, those conclusions do not reflect the actual findings of the FTT. I am, however, surprised that this publication has relied on the headlines of the case, rather than the reality.

There were approximately 100 cases of payments from EBT's being reviewed. It is true that the majority of these were found to have been loans. However, approximately 30% were found to be remuneration.

One of the FTT's conclusions was that the assessments were to be "reduced" accordingly, not "removed".

I therefore cannot accept the general conclusion that RFC have "won" this case.

 

 

Loans?    2 thanks

The Rogue | | Permalink

Why were Rangers making loans to it's players?  Couldn't they afford to pay the gas bill?

Albasas's picture

Institutionalised 17th C Style Political Vendetta

Albasas | | Permalink

The main issue as I see it here is that HMRC, alleged, but lost on Appeal at the FTT, on their claim that the oldco Rangers EBT's avoided £47.65 m employment taxes (big tax case) through their use of these schemes. Unfortunately, it was perfectly within HMRCs remit to do this, given what was at stake, so Rangers were made a test case of. Rangers are more than a football club, and a way of life, and a social institution, for a great many people in Scotland and around the world. So another more sinister agenda is suspected. For me it throws the whole current tax compliance check procedure as covered by the Legislation introduced 1 April 2009 into sharp focus. If HMRC can play 'pin the tail on the donkey' in terms of tax liabilities surely it has to compensate when it get it wrong to the extent the did here and a business fails indirectly, as happened here? Also:

1. Why was Craig Whyte allowed to run up another £8-9m in unpaid employment taxes while this was still going on - the small tax case. HMRC new of him and his methods so they must have had a strategy to deal with him from previous experience? Why can't Whyte not be made personally liable for that deliberate act under current legislation?

2. Why did HMRC refuse to deal with Craig Whyte? Was this as a consequence of 1. above or  not? The CVA was rejected by HMRC for that reason. Had it been accepted Rangers oldco would still be alive and kicking; and

3. Why didn't Sir David Murray seek HMRC clearance for his MIH (the RFC oldco holding company's) EBT's?

Whyte was faced to make horrible business decisions in the face of all this some of it of his own making some not. Some the hapless manager McCoist's on the park - out of Europe loss of that cashflow etc.

On balance it looks like someone somewhere in  HMRC tried to put Rangers out of business and they very nearly succeeded. In whose interest was that then? From a taxman and a Rangers perspective its been a lose-lose Case.

Something stinks here! Looks like a perfectly justified tax compliance matter turned into an  institutionalised 17th C political vendetta. 

 

 

 

 

 

   

Loans    5 thanks

lam_ac | | Permalink

Whether the tax avoidance is ultimately determined to be legal or not, effective or not, this is another example of sheltering "income" from tax which massively reduces the burden of tax paid by those that can afford such strategies.  This is the same logic used by the large corporations who operate from an offshore base this denying the Exchequer revenue. The massive sheltering of taxes does nothing to aid recovery, ultimately to everyone's detriment. I wonder (and I say this as a football fan) what supporters, who chastise "Big Corp PLC" for their machinations would think of their heroes doing no better

Really!!!    1 thanks

ThornyIssues | | Permalink

<a href="mailto:liam@adplus" rel="nofollow">liam@adplus</a> wrote:

HMRC have every right to go after tax that is due if they deem it is payable. Whether they take it to the first tier, second tier or wherever, if they believe they can prove the tax is due, why not?

We do it with clients when money is due, HMRC may not be a business but with so much to collect I understand why they go after the big ones, my problem with HMRC is they try to go after the little guys first!!

 

I just hope that HMRC "deem" you owe them 100% of your (gross) salary going back six years. HMRC should not be allowed to "deem" anything. Not tax, not employment status, nada. By thinking like that, you vindicate HMRC's assertion that they need vague and woolly tax laws so that they can either use Fear, Uncertainty and Doubt to coerce undue tax or to burn taxpayer money in futile and/or vindictive litigation, simply because they can and it is not their money. 

 Rangers and others took professional advice and mitigated tax using the vague and woolly tax laws to their advantage. EBTs were not illegal and thus HMRC's litigation was futile.

New legislation changed the position subsequently.

gj3133 | | Permalink

Of course,  this has all changed since the time that Rangers used their scheme.  The 'disguised remuneration' legislation was enacted in July 2011 and applies to EBTs from 6 April 2011 onwards (with certain transactions also being brought within the new legislation if they were carried out between 9 December 2010 and 5 April 2011 inclusive).

Given that HMRC's position    1 thanks

georgelewislimited | | Permalink

Given that HMRC's position was upheld in 30% of the EBT's reviewed in this cae, it can hardly be said that their litigation was futile.

...

georgelewislimited | | Permalink

gj3133 wrote:

Of course,  this has all changed since the time that Rangers used their scheme.  The 'disguised remuneration' legislation was enacted in July 2011 and applies to EBTs from 6 April 2011 onwards (with certain transactions also being brought within the new legislation if they were carried out between 9 December 2010 and 5 April 2011 inclusive).

 

Given that HMRC's position was upheld in 30% of the EBT's reviewed in this cae, it can hardly be said that their litigation was futile.

Reason for administration

ahickie | | Permalink

It wasn't actually this debt that forced Rangers into administration, though, it was the non-payment of current PAYE/NIC and possible VAT liabilities under the new regime, albeit some of these may not have been paid because of the knock on effect of the Big Tax Case hanging over the club.

Tom 7000's picture

Who gets the money?

Tom 7000 | | Permalink

Lets suppose I pay £100 on the turnstile to watch a game...say Man Utd.

Out of the £100, HMRC get £16.66 vat leaving £83.33

This £83.33 is available to pay Wayne Rooney...well net of the employers NIC at £13.8%  = 10.10

So wayne gets £73.23 Gross

 

Well he doest really as he has to pay 50% tax and 2% NIC  = £38.07

 

This leaves wayne with a whopping great  £35.16 take home pay out of my £100

 

So remind me again...who makes the money out of football......

carnmores's picture

well its not EBTs anymore its EFRBs

carnmores | | Permalink

that are all the rage with promissory notes etc , these may be more difficult to challenge

EBT's

yeboyye | | Permalink

From reading the above it looks like there were other ETB's in existence.  Were these all operated by football clubs or were other sports involved?  Surely there are bigger clubs in England that HMRC could have chased for bigger sums of money?  How many other ETB's were keeping their fingers crossed that HMRC would not "randomly select" (self-assessment 1996!) their file?  This appears to have resulted in an enormous cost for the ETB randomly selected; and it looks like they are into injury time.

slipknot08's picture

repayable loans?

slipknot08 | | Permalink

"Does this mean that, with with the payments now having been officially proved to have been loans, the liquidators will now seek to recover all those loans, or at least those of them that are not time-barred?"

No (as the law stands at this moment in time, i.e. not second guessing the results of any appeals to higher courts): the loans were made by the Trustees of the EBT, which is an independent third party and has complete discretion over whether it makes loans, appoints on new trusts, etc (OK in an ideal world, but that is the majority decision as it currently stands).

I don't see how the administrator has any recourse against the players to recall the loans, because they were made by an unconnected (in the tax sense) third party, unless of course the administrators are able to invoke some sort of "deprivation of assets" provision (which would seem difficult as the club could argue in defence that its payments to the EBT were made in good faith, following professional advice on a tax saving scheme, which - at first instance - has actually succeeded); it is the (old) club which is in administration, not the trustee.

Nope!

ThornyIssues | | Permalink

yeboyye wrote:

From reading the above it looks like there were other ETB's in existence.  Were these all operated by football clubs or were other sports involved?  Surely there are bigger clubs in England that HMRC could have chased for bigger sums of money?  How many other ETB's were keeping their fingers crossed that HMRC would not "randomly select" (self-assessment 1996!) their file?  This appears to have resulted in an enormous cost for the ETB randomly selected; and it looks like they are into injury time.

I know of companies, including large household name multi-nats who paid "ordinary" employees either partly or substantially via EBTs.  

Rangers

guberman | | Permalink

Now that the tribunal have decided that the payments made to players were loans, will the liquidators be able to pursue the players for repayments of these loans?

naomi2000's picture

Read the report

naomi2000 | | Permalink

 

Like George, I read (ok skimmed) the full report with it's "colouful" characters . I found the minority report very troubling (particularly when read in conjunction with the BBC Scotland coverage ) and cannot help wondering whether the majority report will be upheld on appeal. 

 

Rangers

guberman | | Permalink

What makes you think that the players know the difference between 50% & 2%!

I would guess..

mackthefork | | Permalink

lam_ac wrote:

Whether the tax avoidance is ultimately determined to be legal or not, effective or not, this is another example of sheltering "income" from tax which massively reduces the burden of tax paid by those that can afford such strategies.  This is the same logic used by the large corporations who operate from an offshore base this denying the Exchequer revenue. The massive sheltering of taxes does nothing to aid recovery, ultimately to everyone's detriment. I wonder (and I say this as a football fan) what supporters, who chastise "Big Corp PLC" for their machinations would think of their heroes doing no better

They they would be fairly happy, as footballers can do no wrong, and big corp doesn't score in the last minute to often.

Regards

MtF

Do we have confirmation that HMRC have sought leave to appeal?

Clapham | | Permalink

Does anyone know if HMRC have sought leave to appeal? This deadline for this has passed and documents shoudl have been filed. It would be interesting to read their grounds

Answer out now. It will be interestign to read their grounds.

 

This . . .

kudlit | | Permalink

guberman wrote:

What makes you think that the players know the difference between 50% & 2%!

Hahaha. I LOLed at this. 

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