The Supreme Court has ruled in favour of HMRC in its fight with Glasgow-based football club Rangers over the club’s use of employee benefit trusts (EBTs).
The club paid more than £47 million to players, managers and directors between 2001 and 2010 in tax-free loans. However, HMRC argued that the payments were earnings and should be taxable.
The Supreme Court dealt with Rangers’ argument that, in order for there to be a redirection of earnings, there had to be more than just the payment of money arising from the performance of the duties of employment – there also had to be a legal right to receive the payment.
Broadly, the Judge appears to have dismissed this argument by reviewing the relevant statutory provisions relating to employment income and concluding that none of the legislation contains any such requirement for there to be the legal obligation suggested by Rangers. The Judge thereby concluded that, when looking at the arrangements as a whole, it was clear the amounts paid into the trust were taxable as earnings.
The expectation is that HMRC will use this decision to issue Follower Notices (which are likely to be accompanied by an Accelerated Payment Notice) in the near future. Clients who do receive a Follower Notice will need to carefully consider it and evaluate whether the decision applies to their specific arrangements or if the facts can be distinguished.
The decision also has implications for the 2019 Loan Charge provisions, which are expected to be included in the next Finance Bill. These provisions essentially seek to tax outstanding loans from disguised remuneration structures as earnings, unless they have been repaid or been subjected to income tax.
Please get in touch with your usual Ryecroft Glenton contact on 0191 281 1292 if you think you may be affected by the Supreme Court’s decision or if would like to discuss any of the above in further detail.