Firms face tax crackdown after landmark Rangers case
● Supreme Court rules that football club was wrong to give tax-free loans
Many more companies operating tax avoidance schemes will be targeted by Her Majesty’s Revenue and Customs after it won a long-running legal battle over payments made to players and staff at Rangers Football Club.
The so-called “big tax case” came to a conclusion yesterday as five Supreme Court judges unanimously dismissed an appeal by BDO, the liquidators of Oldco Rangers, bringing to an end a seven-year legal dispute that involved the club’s use of Employee Benefit Trusts (EBTS).
The tax authority opened its investigation into Rangers in 2010 after about £50 million worth of payments were made to dozens of employees through EBTS from 2001 onwards, and the case continued after the Glasgow-based club was consigned to liquidation over an unrelated tax debt in 2012.
After suffering two tax tribunal defeats to the Murray Group, the former majority shareholder of Rangers which administered the EBT scheme, HMRC has secured a binding triumph which it says will
have major consequences. Lord Hodge and his fellow judges agreed with HMRC’S assertion the payments were taxable earnings and not loans, as contended by the club.
Many of the payments had been set out in advance in “side letters” which were separate from contracts and kept secret from the tax and football authorities.
EBTS were the subject of a legislative crackdown in 2010, but HMRC continued to pursue thousands of companies which used the schemes beforehand, with a July 2015 deadline set for firms to settle debts. Those which did not have now been urged to come forward following the result of what was seen as a major test case.
David Richardson, director general of HMRC’S customer compliance group, said: “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.”
The outcome will not have any financial impact on the football club as it stands now, as the assets and business were transferred to a new company when RFC2012 was consigned to liquidation.
However, other creditors of the old company will see their payouts cut.
Andy Wood, technical director of Enterprise Tax Consultants, predicted the ruling would have “dramatic” consequences for companies.
He said: “It gives HMRC the authority to pursue them for income tax without the need to embark on a further series of legal actions.
“The process of issuing follower notices to recoup payment of what is expected to be tens of millions of pounds in income tax could begin almost immediately.
“In addition, I have no doubt that HMRC will feel emboldened by this judgment.”
Paul Noble, tax director at legal firm Pinsent Masons, said HMRC would be “delighted” with the decision and predicted it would cite it “extensively” as it looks to take action against other employers.
Although yesterday’s verdict will not have a direct impact on the current iteration of Rangers, the Scottish Football Association and the Scottish Professional Football League have been urged to take action, with demands the club be stripped of the titles it won while using the EBT scheme.
Former Rangers chairman Sir David Murray said he was “hugely disappointed” with the verdict, which “runs counter” to the legal advice provided to the club.
He added: “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.
After seven years, four court judgments and one insolvency, we at last have a final decision on the Rangers football tax case.
The Supreme Court has ruled in favour of HM Revenue and Customs (HMRC) in its fight with the Ibrox club over the use of Employee Benefit Trusts (EBTS). Five judges said that more than £47 million paid to players, managers and directors between 2001 and 2010 in tax-free loans were in fact earnings and should be taxable.
A total of 80 Rangers staff members, including owner Sir David Murray, were involved.
Payments made via EBTS were agreed in “side letters”, which were separate agreements to employment contracts and were hidden from the taxman and the football authorities.
The court’s decision is not expected to have any material or financial impact on Rangers as the case was brought against RFC2012, the entity left over when Rangers went bust amid a separate tax dispute that saw its assets transferred to a new entity. But it has implications for others. Firstly – and perhaps most unfairly – ordinary creditors of the old Rangers, many of them small businesses, will now receive less from the liquidators.
Secondly, other firms which have used EBTS will now face an emboldened HMRC, which will seek to make these companies pay.
New laws were brought in back in 2010 to crack down on EBTS, with firms given the opportunity to reach a settlement over unpaid taxes, HMRC pursuing those that did not.
HMRC says the decision has “wide-ranging implications” and has sent a clear message: pay-up now or face the consequences.
The third implication centres on the 14 titles Rangers won between 2001 and 2010. The hashtag #stripthetitles was trending on Twitter yesterday as fans vented their anger.
The argument is that Rangers were able to afford better players during this period by using EBTS – in effect financial doping. Celtic have made clear it expects Scottish football authorities to review the case even though an earlier panel, chaired by judge Lord Nimmo Smith, ruled Rangers had gained no “unfair competitive advantage”.
The SFA quickly ruled out any further disciplinary action – but questions of sporting integrity and the fallout from the Rangers case will continue to be heard.