The Supreme Court has ruled in favour of HMRC over a long running tax avoidance case against a former incarnation of Rangers football club (now in liquidation). The case concerned a tax avoidance scheme under which the club paid remuneration to their employees through a complex employee benefit trusts and sub-trusts structure in the hope that the scheme would avoid liability to Income Tax and Class 1 National Insurance contributions. This involved the payments of over £47m to players, managers and directors of the football club between 2001 and 2010.
HMRC has always argued that these payments were part of the employees’ earnings and were therefore liable to Class 1 National Insurance contributions and Income Tax. The long running case was first heard by the First-tier Tribunal (FTT) back in 2012. The FTT found in favour of Rangers football club and this decision was supported by the Upper Tribunal. However, HMRC’s appeal to the Scottish Court of Session was allowed and this decision has now been upheld in a unanimous verdict by all five Supreme Court judges.
The Supreme Court Judge summarised his decision with three interesting points which showed the Court taking a decisive view against tax avoidance.
- The tax code is not a seamless garment.
- It is necessary to pay close attention to the statutory wording and not be distracted by judicial glosses which have enabled the courts properly to apply the statutory words in other factual contexts.
- The courts must now adopt a purposive approach to the interpretation of the taxing provisions and identify and analyse the relevant facts accordingly.
Planning notes: HMRC’s EBT Settlement Opportunity (EBTSO) was launched in 2011 and provided the framework under which HMRC was prepared to settle open enquiries into Employee Benefit trusts (EBT) and similar arrangements without the need for litigation. The EBTSO ended on 31 July 2015. This decision should finally bring an end to litigation relating to EBTs and is likely to have far reaching implications for employers that have still not resolved their positions with HMRC.