Aggressive Tax Avoidance & Glasgow Rangers Football Club

Why should an aggressive tax avoidance scheme involving a Scottish football club affect you?

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 and between 2002 and 2009 channelled payments as loans to footballers and management through the trust.  As a result of doing this it avoided paying huge amounts in tax and national insurance.

Understandably HM Revenue and Customs were not entirely happy 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.

Previously HMRC have 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 has proved a barren path for HMRC and 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.

But in the Court of Sessions HMRC tried a different tack 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.  It is likely that an appeal will be made to the Supreme Court so we won’t see how HMRC are going to implement this decision for a while.

But, the decision does have implications outside of the narrow and obscure world of aggressive tax avoidance.

In theory HMRC might use this argument; that redirected earnings are taxable; in many straightforward and otherwise non-aggressive planning.  For example in the case of flexible benefit arrangements where the 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 arrangement such as mobile phones. Up until now HMRC accepted that this is perfectly legitimate tax planning and not tax avoidance.

HMRC have indicated that they will await the outcome of any appeal before considering the full effects of the case and will publish full details in advance of any changes to their current policy.

We will await the outcome of the appeal and update you if any changes to current practice are likely. Please contact us if you would like any more details.