Supreme Court ruling means that tax avoidance crackdown is permanent
by Alan Little
This week, HMRC won a hugely significant victory in the Supreme Court over the Scottish football club Rangers after a protracted battle to recoup taxes from what the Revenue insists was a tax avoidance scheme.
The unanimous ruling by Supreme Court judges on Wednesday in favour of HMRC is a major indicator that the Government’s clampdown on all financial arrangements that could be construed as tax avoidance is here to stay. This is directly relevant to the UK’s professional contracting community, or at least those who work via their own personal service companies (PSCs) rather than PAYE Umbrella Companies, as it is likely to strengthen the case for HMRC to extend controversial new public sector IR35 tax avoidance rules to the private sector.
Rangers used a scheme known as an Employee Benefits Trust (EBT), an arrangement that has been utilised by large companies as a means of avoiding tax. In it, companies create trusts from which they make tax-free “loans” in the form of cash payments to employees or beneficiaries to avoid tax. In many instances, these “loans” were never repaid.
Since EBTs’ invention, legislation has been enacted to prohibit the use of the scheme for purposes of tax avoidance. Payments from EBTs may no longer be made on a contractual basis.
HMRC has consistently maintained that payments made by Rangers FC between 2001 and 2010, when it was under different ownership, were in fact employee earnings that should have been subject to normal National Insurance and PAYE income tax contributions. In evidence, they provided the Supreme Court with letters and emails between the club’s directors and players’ agents. They were also able to show that none of the loans made have ever been paid back.
Recipients of Rangers’ EBT “loans” include managers, directors and star players. The club’s former owner, Sir David Murray, also received such a payment. While the amounts paid to each recipient differed, the total sum paid out during the period that the scheme was in operation came to £47 million.
The Supreme Court ruling, coming from the highest court in the land, overturns the rulings of two tribunals in 2012 and 2014, which found in favour of Rangers FC. In 2015, the Court of Session found in favour of HMRC after the latter appealed the tribunal decisions.
The ruling will undoubtedly assist HMRC in pursuing thousands of other companies that it believes have used EBTs improperly. Each were subject to the legislative crackdown, which came into effect in December 2010. A period of grace was allowed for settlement, but this expired in July 2015. Other companies may now be liable for large sums.