Rangers Football Club has entered administration as it awaits the verdict in an HM Revenue and Customs (HMRC) tax tribunal, which concerns its use of an employee benefit trust (EBT).
An EBT is a discretionary trust used for the benefit of employees. The Scottish football club used EBTs to pay players’ wages into offshore trusts in order to avoid national insurance (NI).
In the case of Rangers Football Club versus HMRC, HMRC is claiming that because the EBT was written into employees’ contracts, it is not discretionary and thus forms a taxable part of their contracts. If the tribunal finds in HMRC’s favour, the decision could cost Rangers £43 million.
Alastair Kendrick, tax director at MacIntyre Hudson, said: “When money went into the EBTs, employees were not being taxed and national insurance was not deducted. Because this is considered to be a contractual payment, not discretionary, it was taxable at the point it went into the EBT.
“So Rangers Football Club could now face PAYE and national insurance on all the money that was paid into the EBT, plus the interest and penalties.”
The case has been completed but still awaits judgement.
Craig Whyte, chairman of the Rangers Football Club, said: “It is extremely disappointing the club finds itself in this position but decisions have to be taken to safeguard the long-term survival and prosperity of the club, both on and off the field.
“The harsh reality is that this moment has been a long time coming for Rangers and its roots lie in decisions taken many years ago. If we do not take action now, the consequences and the risks to the club are too great.
“There is no realistic or practical alternative to our approach as HMRC has made it plain to the club that should we be successful in the forthcoming tax tribunal decision, it will ‘appeal, appeal and appeal again’ the decision.
“This would leave the club facing years of uncertainty and also having to pay immediately a range of liabilities to HMRC. Even if the club were to succeed in the tax tribunal, it would still face substantial liabilities. Zero liability will not happen.”
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