Rangers tax case to have ‘dramatic’ consequences for football and business

The Supreme Court has today ruled in favour of HMRC in a tax case relating to the remuneration of Rangers Football Club employees through an employee benefit trust between the tax years 2001-02 and 2008-09.

The case involved a remuneration trust set up by the club under which employees received loans that were not subject to income tax or Class 1 national insurance contributions. HMRC argued that the sums paid to the trusts as remuneration should have been subject to tax.

The First-tier Tribunal had previously ruled in 2012 that, although the scheme constituted tax avoidance, as the employees only received a loan of the money paid to the trusts, the scheme avoided liability to income tax and NICs. This judgment was upheld by the Upper Tribunal in 2014.

However, on appeal from HMRC in 2015, the Inner House of the Court of Session decided that “income derived from an employee’s work” was “assessable to income tax, even if the employer agrees that it be redirected to a third party”.

The Supreme Court said that the key question was whether remuneration was taxable as earnings when paid to a third party in cases where the employee “had no prior entitlement to receive it himself”.

In the judgment, the court concluded that “the sums paid to the trustee of the Principal Trust for a footballer constituted the footballer’s emoluments or earnings”.

Andy Wood, technical director of Enterprise Tax Consultants said that the ruling would have a “dramatic” impact on football and the business world.

Speaking about football clubs and other companies that have used employee benefit trusts, he said that the judgment “gives HMRC the authority to pursue them for income tax without the need to embark on a further series of legal actions”.

Wood continued: “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 judgement as it expands its ongoing enquiries into football’s use of image rights payments.”

While a number of leading clubs have sought to reach a settlement with HMRC ahead of the Supreme Court’s decision in the Rangers case, Wood highlighted that the judgment could have serious implications for other football clubs that have no agreed such a deal.

He said: “Some of those organisations which used EBTs to reward star players and directors may well not still be in the Premier League and, therefore, discomfited by being asked to come up with substantial sums of money at short notice without still having access to the sort of income associated with being in English football’s top flight.”

HMRC ran an employee benefit trusts settlement scheme in 2015 in which a formal settlement had to be agreed with HMRC by 31 July 2015. HMRC warned at the time that employers who failed to reach a settlement would be taken to the tax tribunal. HMRC collected approximately £1.5bn from the scheme.

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