HM Revenue and Customs (HMRC) has lost its appeal in the upper tier tax tribunal in the case around defunct Rangers Football Club plc’s use of an employee benefit trusts (EBT).
In November 2012, the first tier tax tribunal ruled in favour of the Murray Group, which had owned the club before it went into administration and later liquidation.
The group had argued that £49 million in payments it made to staff were not subject to tax because they were loans, not wages.
HMRC argued that payments made to players and other employees should be taxable because the EBT was written in employees’ contracts, that it was not discretionary and so formed a taxable part of their contracts.
The court dismissed the appeal against a first tier tax tribunal decision, but referred several issues back to the tribunal, with some payments to be re-examined, including termination and guaranteed bonus payments.
The judgement has no impact on the current Rangers owners.
Lord Doherty, the tribunal judge, said in his judgement: “The appeal is dismissed except in so far as it relates to the termination payments.
“I shall remit the case to the first tier tribunal with a direction to allow the taxpayers’ appeals against the assessments relating to the payments to the sub-trusts of Sir David Murray, his sons, Mr McClelland and Mr MacMillan; to proceed as accords in relation to the termination payments, the payments in respect of guaranteed bonuses, and any related questions of grossing up.
“Standing my findings and my disposal, the remit should be to the first tier tribunal as originally constituted.”
A spokesman for Murray International Holdings (MIH) said: “We are pleased with the judgement, which again leaves negligible tax liability and overwhelmingly supports the views collectively and consistently held by our advisers, legal counsel and MIH itself.
“It is abundantly clear that Rangers Football Club would not have gone into administration or liquidation had the purchaser fulfilled its contractual obligations and responsibilities.
“Similar to the resolution of the upper tier tribunal appeal, we hope that the relevant authorities conclude their investigations and commence proceedings at the earliest opportunity.”
A spokesperson for HMRC added: “We are naturally disappointed with today’s decision and are considering an appeal.”
HMRC has one month to decide whether or not to seek permission to lodge an appeal with the Inner House of the Court of Session.
It is important to appreciate that the vast amount of the arrangements set up by the club for the players have been settled out of court. It appears the judge was happy that with these particular trusts that the money had been correctly vested and so not avoidance tool. It is important that people do not simply think that if they have a EBT that they are fine. It will depend on the structure and how the trust vehicle was used
Has anyone heard the fat lady sing ?, this is not done and dusted just yet. H.M.R.C. will submit an appeal that goes back to the first tier tribunal, with a strong likelihood of the original decision being reversed. The end play will be the tax man eventually knocking on the doors of the “loan” recipients, with a hefty tax demand.
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