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HMRC win appeal against Rangers’ use of EBT scheme

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On the day that Rangers published their annual report for the year ending June 2015, a judgement from the Judiciary of Scotland has ruled that old Rangers use of the EBT scheme amounted to “a mere redirection of emoluments or earnings” and was accordingly “subject to income tax”.

HMRC had claimed the EBT scheme were salary payments and subject to tax, but they lost two appeals at tax tribunals in 2012 and 2014, before three judges at the Court of Session in Edinburgh upheld their appeal in a judgement published on Wednesday.

The appeal was heard by Lord Carloway, Lord Menzies and Lord Drummond Young ruled that if income was derived from an employee’s services, in their capacity as an employee, it was an emolument or earnings and “thus assessable to income tax”.

Delivering the opinion of the court, Lord Drummond Young said: “That accords with common sense. 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.

“On the foregoing basis, we are of opinion that the sums received by the trustee of the Principal Trust and in due course by the trustees of the sub-trusts amounted to a mere redirection of income and thus constituted emoluments or earnings of the employees in question.

“It seems to us to be self-evident that the obligations in the side-letter were part of the employee’s employment package, and provided him with additional remuneration. They were negotiated as part of the total employment package…Once it is accepted that the bonus payments represented consideration for a footballer’s services qua employee, it inevitably follows that those payments represented emoluments or earnings of the footballer in question.

“Furthermore, so far as the footballers are concerned, at least, it seems to us that if bonuses had not been paid they might well have taken their services elsewhere. We realise that the fifth respondent [RFC 2012] was in, potentially, a difficult financial position, competing for good players in an international market where other countries may not have the same rigorous approach to taxation as the United Kingdom. Nevertheless, the law is clear: the payments made in respect of footballers were in our view derived from their employment and thus the payments were emoluments or earnings.

“We accordingly conclude that the primary argument presented for HMRC is correct: the payments made by the respondents to the Trustee of the Principal Trust in respect of employees were emoluments or earnings and are accordingly subject to income tax. Furthermore, those payments were made at the time of payment to the trustee of the Principal Trust, with the result that the obligation to deduct tax under the PAYE system fell on the employer who made such a payment.”

When Rangers started using the EBT scheme on the advice of lawyer-turned-porn star Paul Baxendale-Walker, the Ibrox side were owned by Sir David Murray

HMRC claimed it was an ‘illegal tax avoidance scheme’ and that Rangers owed them tens of millions of pounds in unpaid tax, fines and interest. But Murray’s parent company Murray International Holding which was defending the claim, sold Rangers to Craig Whyte for £1 in 2011 and with along with that liability of the Big Tax Case.

Just under a year later, Rangers went into administration in February 2012 and subsequently liquidation over unpaid PAYE and National Insurance.

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About Author

scotzine

Andy Muirhead is the Editor of Scotzine and the Scottish Football fanzine FITBA. He is the Scottish Football columnist for The Morning Star and has written for a number of other publications including ESPN, Huffington Post UK, BT Life's a Pitch and has had his work featured in the Daily Record, The Scotsman and the Daily Mail.

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