Rangers 2 HMRC 1 (Extra Time)

18th November 2015


For those of you who have not been following the above, the case involves the now in Liquidation Glasgow Rangers company that between 2001 and 2010, used an Employee Benefit Trust (“EBT”) Scheme to pay £47.65m to players and staff in tax free loans.

This was seen by many as the HMRC EBT test case, however a first tier ruling in Rangers favour in 2012 was followed in July 2015 by the same result by the upper-tier tax tribunal.  This was particularly frustrating for HMRC as HMRC had run an EBT settlement scheme which closed on 31 July 2015.  Under this scheme, businesses that had used EBT’s had to register their intention to settle with HMRC by 31 March 2015, in order to benefit from more favourable terms, and pay up by the end of July 2015.  There were no penalties, but now the opportunity has lapsed, EBT users could face fines of 50% or more of the tax due.

The upper tier tribunal gave HMRC leave to appeal to the Court of Sessions and the third leg took place at the beginning of November 2015.  Although advisors are divided as to the consequences, HMRC won this leg, as the Court held that Rangers had run a “contrived EBT structure”.

The Court of Sessions judges have issued a very clear ruling that it is “common sense” and “self evident” that payments (to players) were linked to work.

The payments through the EBT were merely “redirection of income” and should have been declared by the employer with tax paid through PAYE.  The judges observed, caustically, that the principle is so glaringly simple and straightforward that it seems to have been overlooked by the two prior tax tribunals.

Supporters of EBT’s have poured cold water on the result, arguing effectively that the Court upheld the principles of EBT’s being legal, however Rangers simply got it wrong in the implementation.  The key issues seem to be that the EBT payments must be discretionary and not contracted in contracts of employment.  In hindsight it is difficult to envisage a player’s agent agreeing to any contract where the majority of his clients income will be discretionary.

The Administrators of Rangers now face the decision whether to take the matter further to the Supreme Court.  If they do not then the majority of £24m recovered from a settlement with Rangers solicitors, will go to HMRC whose claim, including the EBT PAYE, is in the region of £60 million.  Many will argue that this will resolve little as supporters of EBT’s will continue to argue that EBT’s work in general, however it is Rangers EBT’s that did not.

At KRE we have dealt with several companies facing EBT issues.  In one instance we were able to assist in the settlement with HMRC prior to the 31 July 2015 deadline.  In another case the company simply did not have the funds to fight and it was sold as a going concern through an Administration process.  Each case must be considered on its merits and much may depend upon the actual operation of the EBT schemes.

If you have clients affected by the above then we are happy to discuss on a confidential and initial no charge basis.