Thousands of companies face tax avoidance scrutiny after HMRC legal win over Rangers
Employers running Employee Benefit Trusts or similar schemes can expect to receive a Follower Notice demanding tax payment.
Employers using offshore trusts to avoid paying tax could now find themselves under scrutiny after the Supreme Court found in Her Majesty’s Revenue & Customs’ favour following a long dispute with Rangers football club.
Under former owner Sir David Murray, Rangers issued a number of employees, including players, managers and directors, with tax-free loans amounting to £47 million from Employee Benefit Trusts (EBTs) between 2001 and 2010. But the tax agency has argued since 2010 that these loans actually amounted to earnings and so should be taxed accordingly.
Two tax tribunals ruled in Rangers’ favour, but the dispute forced the Scottish football club into administration and liquidation. HMRC appealed against both decisions and won in the Court of Session in 2015. The liquidators BDO, knowing that huge tax liabilities would affect the amount of cash available to Rangers’ creditors, then took the case to the Supreme Court, the highest court in the land but lost.
BDO will now be liable for the tax and will have to come to an agreement with HMRC to pay it off. The Supreme Court decision is not expected to have any material or financial impact on Rangers itself, which is now owned by a different company.
But as a result of its victory, the taxman is also expected to issue so-called Follower Notices to thousands of companies that run EBTs or similar schemes, demanding payment. A settlement opportunity in light of the 2010 legislation ran out in July 2015 and so other firms could now also be liable for major sums.
In a statement, HMRC said: “This decision has wide-ranging implications for other avoidance cases and we encourage anyone who has tried to avoid tax on their earnings to now agree with us the tax owed. HMRC will always challenge contrived arrangements that try to deliver tax advantages never intended by parliament.”