“…it is now!”EBT Glasgow Rangers

There has been a long running tax case rumbling through the lower courts on the use of an accounting device called an Employee Benefit Trust (EBTs), previously used by Glasgow Rangers. HMRC considered the use of the EBT a scheme to avoid Pay As You Earn and National Insurance Contributions.

An EBT collects payments from employers and makes these available to employees as a loan: this process means that funds are made available (in the Rangers’ case to players) but bypasses charges of tax or NIC.

The case – concerning the use by the football club to funnel £50m of payments to employees from 2001 – has now been considered by Supreme Court and a unanimous verdict handed down by five supreme court judges ruled in favour of HMRC. The verdict was given following an appeal by BDO accountants, which acted as liquidator to Rangers when the club went bust over an unrelated tax debt in 2012.

Whilst it was acknowledged that the individual processes in the set up and management of the EBT were carefully drawn to keep within current legislation – agreed in “side letters”: separate agreements to employment contracts hidden from the taxman and the football authorities – the overall strategy was the avoidance of tax and NIC. In their judgement, the Supreme Court judges were satisfied that this “purposive” approach, the purpose for which the EBT had been created, was the avoidance of PAYE and NIC and therefore they dismissed Glasgow Rangers’ appeal.

A growing number of cases, where HMRC had challenged the use of EBTs by other concerns, will now be pursued by HMRC based on this judgement.

“This decision has wide-ranging implications for other avoidance cases and we encourage anyone who’s tried to avoid tax on their earnings to now agree with us the tax owed,” said Director General of HMRC’s customer compliance group, David Richardson.

Companies that still have not come forward have now been urged to do so after the binding ruling from the supreme court on the use of EBTs.

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