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Final whistle on the Rangers Case

Judgment of the Supreme Court in a long-running tax dispute involving Glasgow’s Rangers Football Club was handed down on Wednesday (5 July 2017) (RFC 2012 Plc (in liquidation) (formerly The Rangers Football Club Plc) v AG for Scotland [2017] UKSC 45).  The appellant was the former owner of the club.  The Supreme Court rejected Rangers’ appeal, finding in favour of HMRC.

Rangers operated Employee Benefit Trusts (EBTs) with a view to avoiding payments of income tax and national insurance contributions.  The mechanics of the EBTs saw employers make payments to a trust in respect of a particular employee.  When doing so, the employer would recommend to the trustee that the sum be resettled into a sub-trust, with the income and capital to be applied in accordance with the wishes of the employee.

Whilst the trustee had theoretical discretion regarding the recommendations of the employer, in this case the trustee “without exception” created a sub-trust for the favoured employee.  The employee would then enjoy extensive powers over that sub-trust.  Access to the funds within the sub-trust would typically be granted to the employee by way of a loan (on limited recourse terms) of the entire sum.

The Supreme Court framed the central issue on appeal as being whether remuneration for work needs to be received by the employee in order to be taxable earnings.  In posing this question the Court found that a “careful examination” of the primary legislation revealed no such requirement, including observing that section 13 of the Income Tax (Earnings and Pensions) Act 2003 defines “the taxable person” (liable for any tax on employment income) by reference to the person who does the work generating the earnings, not the recipient of the earnings.  This non-restrictive approach was noted elsewhere in the relevant legislation.

Certain earlier decisions in the Rangers Case (particularly before the First-tier Tribunal) had held that it was not possible to adopt a purposive approach to the interpretation of earnings (i.e. that it was not possible to look behind the wording of the legislation to the purpose and intent of Parliament).  The FTT suggested that approach was curtailed by “a highly prescriptive statutory code” – the Supreme Court disagreed.

The Supreme Court therefore rejected Rangers’ appeal.

HMRC commented on the judgment: “The unanimous decision of the Supreme Court supports our view that employment benefit trust avoidance schemes simply do not work.  This decision has wide-ranging implications for other avoidance cases …”.

The decision is likely to impact a large number of other employers (including many outside the sporting world) who participated in EBT-type arrangements and who currently have outstanding disputes with HMRC.  This in turn may see an increase in negligence claims as those employers review the advice which they were given at the time.

For further information contact a member of our Dispute Resolution team on 0113 220 6270.