Why should an aggressive tax avoidance scheme involving a Scottish football club affect you?
How did the Murray Group structure its tax avoidance scheme?
To set the scene, the Murray Group Holdings Ltd, who owned the club, set up an “Employee Benefit Trust” in 2002 as part of a tax avoidance scheme. Between 2002 and 2009 Murray Group channelled payments as loans to footballers and management through the trust. This meant they avoided paying huge amounts in tax and National Insurance Contributions.
HMRC's attempts fail to find the net
Understandably HMRC was unhappy with the arrangement and tried for many years to convince the courts that the scheme didn’t work. HMRC lost in both the First and Second Tier Tribunals and eventually the case reached the Court of Sessions in Scotland.
In the past, HMRC tried to attack these types of tax avoidance schemes by arguing that the allocation of money to beneficiaries of the trust, or money loaned by the trust to the beneficiaries (in this case the footballers), was income.
This was proven to be a barren path for HMRC; the road is littered with failed cases where the courts have largely agreed with the taxpayers that a loan can’t be treated as employment income.
A new play
In the Court of Sessions HMRC tried a different tactic and argued that the money paid into the trust was already income of the players before it was redirected and paid as a contribution to the trust. This means that the payment was taxable on the player as income, and it was irrelevant what happened afterwards.
To the surprise of many, the Court of Sessions agreed with HMRC and Glasgow Rangers lost the case.
While some may shrug and argue its one unique case, the decision had implications outside of the narrow and obscure world of aggressive tax avoidance.
How did this case impact wider tax planning approaches?
In theory, HMRC might use this argument: redirected earnings are taxable in many straight-forward and otherwise non-aggressive planning. For example, in the case of flexible benefit arrangements, an employee waives the right to some income or bonus in exchange for a non-taxable benefit.
If this was the case, an employer might be required to operate PAYE on the payment before the employee redirects the money, maybe as a pension contribution into a registered pension fund. It might even be used to tax other salary sacrifice arrangements, such as mobile phones. Up until then, HMRC accepted that this was perfectly legitimate tax planning and not tax avoidance.
Ensure your tax planning is a winning strategy
If you're unsure whether your employee benefits and payment structures meet HMRC's requirements, Shorts can help. Our Business Taxes team have decades of experience ensuring a company's accounting structures meet the latest legislative requirements, and proactively share updates to ensure you can benefit from any reliefs or deductions.
