Rangers Football Club loses appeal in employee benefits trust tax case


The Supreme Court has dismissed an appeal by Rangers Football Club (RFC) in a case regarding income tax and national insurance liabilities for the organisation’s employee benefits trust (EBT) scheme.

The case relates to the assessment from HM Revenue and Customs (HMRC) that the EBT arrangements and sub-trusts set up on behalf of RFC footballers and their families between 2001 and 2009 should be liable for class one national insurance contributions (NICs) and income tax.

HMRC argued that the funds available from these trusts, which were used to enable RFC players quick access to tax-free loans, qualified as part of employees’ earnings and should therefore be taxable. This is despite the funds being paid to a third-party rather than to the employee directly.

The tax-free loans were to be paid back over an extended term of 10 years on a discounted basis. Both RFC and the footballer expected that the loan would not be repaid at term, and would instead be renewed. This would mean that the loans would be repayable out of the footballer’s estate on death, reducing the value for inheritance tax purposes.

The same trust mechanism, which paid individual sub-trusts that were in a footballer’s name from a principle trust paid in to by the organisation, was also used to make termination payments to players and pay bonuses, which were based on staff performance.

RFC, which was owned by Murray Group Holdings during this time, appealed the HMRC’s assessment to take the case to the First-tier Tribunal Tax Chamber (FTT). The FTT ruled in favour of Murray Group Holdings in 2012. The Upper Tribunal Tax and Chancery Chamber upheld this decision in 2014.

The Advocate General for Scotland appealed this ruling to the Inner House of the Court of Session on behalf of HMRC, which found in its favour in 2015. The Court of Session held that the payments by the employer into the trust were derived from an employee’s work as an employee and therefore counted as emoluments or earnings, that the scheme amounted to a redirection of an employee’s earnings and that it did not remove the employer’s income tax liability. RFC appealed this decision.

The Supreme Court dismissed RFC’s appeal, maintaining the Inner House of the Court of Session’s ruling that the money paid into the trust constituted a footballer’s earnings and was therefore subject to income tax.

RFC is now owned by a different organisation. Murray Group is in liquidation.

In the ruling, Lord Hodge said: “The scheme was designed to give each footballer access without delay to the money paid into the Principle Trust, if he so wished, and to provide that the money, if then extant, would ultimately pass to the member or members of his family whom he nominated. Having regard to the purpose of the relevant provisions, I consider the sums paid to the trustee of the Principle Trust for a footballer constituted the footballer’s emoluments or earnings.

“For these reasons, which are essentially the same as those of the Inner House, I would dismiss the appeal.”

David Richardson, director general, customer compliance group at HMRC, said: “The unanimous decision of the Supreme Court supports our view that employment benefit trust avoidance schemes simply do not work. 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. HMRC will always challenge contrived arrangements that try to deliver tax advantages never intended by Parliament.”

James Stephen, business restructuring partner at BDO, the liquidators for Murray Group, added: “Given the significance of the matter and the support and direction received from creditors and the liquidation committee, we believe taking the case to the Supreme Court has been the correct course of action. We will now engage with HMRC on adjudicating its claim. Further advice and guidance will be provided to creditors in due course.”

Colin Ben-Nathan, chair of the employment taxes sub-committee at the Chartered Institute of Taxation, said: “We understand that HMRC [has] a large number of enquiries ongoing into EBTs at the moment and [it] will therefore feel vindicated by this decision.

“While many employers have already settled with HMRC, for those that have not it is likely that HMRC will now issue ‘follower notices’ where [it] consider[s] 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.


“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.”