Supreme Court takes a strong stance on the Rangers EBT case

HMRC is likely to issue follower notices to employee benefit trusts (EBTs) currently under enquiry, where the circumstances match those in the Supreme Court’s decision in the Rangers case, says the CIOT.

www.tax.org.uk/media-centre/press-releases/press-release-supreme-court-take-tough-line-rangers-‘landmark-tax-case’

The Supreme Court has decided1 that tax planning undertaken by Rangers Football Club2 involving an Employee Benefit Trust (EBT) did not succeed in avoiding employment income tax and National Insurance Contributions on amounts paid to the EBT for players and executives. This followed successes by the Club in the First Tier and Upper Tier Tribunals but a reversal in the Court of Session.

Lord Hodge, delivering the judgement of the Court, said that the appeal raised a “fundamental question about the nature of the income tax charge on employment income” but he was ultimately very clear in his view that “the sums paid to the trustee of the Principal Trust for a footballer constituted the footballer’s emoluments or earnings”.

Colin Ben-Nathan, Chair of the CIOT’s Employment Taxes sub-Committee, said:

“We understand that HMRC have a large number of enquiries ongoing into EBTs at the moment and they will therefore feel vindicated by this decision.

“Whilst many employers have already settled with HMRC, for those that have not it is likely that HMRC will now issue “follower notices”3 where they consider that the circumstances sit on all fours with Rangers. These notices will require employers to pay up the tax or face a penalty if they fight on but lose in the courts, neither of which choices will be particularly appealing after the Rangers decision.”

He added that:

“This judgement demonstrates that the courts are taking an increasingly tough line on tax avoidance, adopting a purposive approach and certainly not considering themselves hidebound by a literalist approach to the law. So taxpayers who cross the line on avoidance do so at their peril.”

Notes for editors

1. The Supreme Court’s judgement and press summary can be found by clicking here.

2. The case involves RFC 2012 Plc (in liquidation), formerly known as The Rangers Football Club plc [2017] UKSC 45.

3. HMRC can settle cases which are similar to each other by issuing ‘follower notices’ where a case has been finally decided in the courts (such as is the position with the Rangers case). If the other cases do not settle their dispute (known as ‘taking corrective action’) and ultimately lose then they will face a penalty of up to 50% of the tax/NICs in dispute.