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It’s happened to one of the biggest clubs in Britain. Rangers Football Club has entered administration and is awaiting the verdict from the HMRC tax tribunal, concerning the use of employee benefit trusts (EBT) for its players and probably some of its more highly paid off field staff.

An EBT is a discretionary trust used for the benefit of employees to reduce or minimise the tax and national insurance they pay. We understand that Rangers used EBTs to pay players’ wages into offshore trusts in order to avoid national insurance (NI).

The case between Rangers Football Club and HMRC, could affect many more clubs in both Scotland and England. HMRC have claimed that the EBT was included in the player’s contract. If the use of EBT’s was part of the players contracts then the payments could not be regarded as discretionary, which is a requirement of an EBT if they are to work effectively. If HMRC’s win the case the consequences for Rangers are dire. Not only will there be considerable tax due, but also significant penalties.

The outcome as looks most likely now is that Rangers football club will have to pay back taxes for the player’s wages as well as a penalty and interest.

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.”

The moral of this story, is to very careful with tax planning. HMRC are clamping down on any tax avoidance scheme and the vast majority of them have to be notified to HMRC before they are recommended to clients.

Always seek advice from fully qualified and authorised advisers before embarking on any tax strategy that is not widely accepted as being genuine and acceptable under current legislation.