Rangers EBT ‘big tax’ case to kick off in Supreme Court

The high-profile dispute between Rangers football club and HMRC over the use of employee benefit trusts (EBT) to make payments to staff and players reaches the Supreme Court next month, in a bid to resolve the issues of whether such payments amount to earnings, which would be taxable as income, or loans

The case is scheduled for a two-day hearing on 15 March and 16 March, in front of a panel of five judges: Lord Neuberger, Lady Hale, Lord Reed, Lord Carnwath, and Lord Hodge. [RFC 2012 Plc (in liquidation) (formerly The Rangers Football Club Plc) (Appellant) v Advocate General for Scotland (Respondent) (Scotland) Case ID: UKSC 2016/0073].

HMRC lost its initial appeal in the so-called ‘big tax case’ at a First Tier Tribunal in 2012, where it sought to argue that that around £48m in loans made between 2001 and 2010 from EBTs amounted to salary payments, on which tax was due. That decision was upheld at an Upper Tribunal in 2014, and again appealed by HMRC, but without success.

However, in November 2015, judges at the Court of Session in Edinburgh found that the payments to various trusts set up in respect of executives and footballers employed by the ‘old co’ (former) Rangers Football Club amounted to ‘a mere redirection of emoluments or earnings' and was accordingly ‘subject to income tax’, therefore finding in HMRC’s favour on the third appeal.

Lord Drummond Young, one of the three judges who heard that appeal, said that if EBTs had not been in operation at Rangers, certain players ‘might well have taken their services elsewhere’ and said that it was ‘common sense’ and ‘self evident’ that the payments were related to work.

‘If the law were otherwise, an employee could readily avoid tax by redirecting income to members of his family to meet outgoings that he would normally pay: for example to a trust for his wife... or to trustees to pay for his children's education or the outgoings on the family home.

‘The funds are ultimately derived as consideration for the employee’s services, and on that basis they are properly to be considered emoluments or earnings,’ he said.

Now BDO, as liquidators, are appealing that decision, on the grounds that the ruling has implications for future cases. 

The Supreme Court will look at three key issues. The first is whether the Court of Session erred in law in reversing the specialist tribunals’ decisions and concluding that payments of ‘emoluments’ or ‘earnings’, for the purposes of the Income and Corporation Taxes Act 1988 and the Income Tax (Earnings and Pensions) Act 2003, had been made by the appellant to its employees.

Secondly, they will consider whether, in order for a payment to constitute earnings for PAYE and National Insurance contribution (NIC) purposes, it is sufficient that the payment was ‘derived from’ work done by a particular employee and/or that ‘it formed part of the employee’s employment package’.

Finally, they will examine whether the powers which each employee held as protector of a subtrust had the effect that the funds in that subtrust were unreservedly at the disposal of the employee and were earnings for PAYE and NIC purposes.

‘Newco’ Rangers have no involvement in the case and will not be affected by the judgment.

The Scottish Court of Session decision, which found in favour of HMRC, is here.

Details of the Supreme Court case are here.

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