Archive 12.11.15 Author: Thomas Adcock

Rangers v HMRC (the third leg) and the use of Employee Benefit Trusts (EBTs)

Archive 12.11.2015 Author: Thomas Adcock

It is fair to say that Rangers have had a torrid time on and off the pitch over the last few seasons, but one thing that they could smile about was HMRCs continued failure to convince the tax tribunals that payments made to trusts settled by the club for the benefit of the families of players and staff from which players were then lent monies, were in fact employment income.  Unfortunately for Rangers, the ref has decided to overrule his linesman and award the game to the away team. Without going into detail, the Rangers case revolves around whether the initial payment from the club to the trust should be considered employment income.

The club set up trusts for the benefit of the families (mostly) of players and staff.  They then transferred money to those trusts.  In the case of the players, the trustees then lent those monies to the player.  HMRC challenged the nature of the payment from the club to the trust and onwards to the players by way of a loan saying that it was employment income.  And they have won – so far. Now this is an odd win for HMRC, as although there is no doubt substantial amounts of money involved, it is unlikely to get much at all.  This is because the ‘Rangers’ that was involved in the scheme is in liquidation with the club having been sold to Rangers (mark II) for £1 a few years ago.

The knock on effect may well be huge though.  Similar arrangements have been used by a large number of people.  To some extent this only affects arrangements entered into pre December 2009 when the disguised remuneration rules were introduced.  Equally, many will say that the decision is not as far reaching as HMRC would like it to be as the result was dependant on the particular facts of the case.  In any event, those that are involved in such structures may now want to take another look at their situation in light of this decision – especially given HMRC’s powers to recover tax under Follower Notices. It is worth saying here that despite the earlier decisions, the decision of the Court of Session was not unexpected.  Many in the profession were uncomfortable with such schemes and those that were may well now have been justified in their view.

So what of the future of tax avoidance schemes? 

The current climate is not kind.  HMRC has not only dramatically strengthened the deterrent with the introduction of Advanced Payment Notices and Follower Notices but it has also won the PR battle – the result being that the public are squarely behind HMRC in its pursuit of tax avoiders.

As HMRC is now converting public perception into victories in the Courts it would seem that there may be little or no future for tax avoidance schemes at all.  Only time will tell.  However, what is certain, is that with the ever increasing complexity of tax legislation and the desire of many to only pay the right amount of tax and not the greatest amount possible, more people who may well have had their heads turned by tax avoidance schemes in the past are now looking to those that can provide them with tax planning that reflects their situation and needs, instead of focusing on convoluted arrangements that reduce a person’s tax liability – at least initially. Fortunately for us this is what we have been doing all along and we know that those that we work with appreciate our creativity and our attention to their lives, and not just the number at the bottom of a calculation.

About the Author

Thomas Adcock

Tax Partner +44 (0)20 7309 3856