There couldn't be a worse time for an unplanned tax bill for Glasgow's fallen Rangers, writes Colin Senez
Rangers Football Club hasn’t really had a very good start to the (footballing) year.
First, they were knocked out of the Europa League by ProgrésNiederkorn from Luxembourg. While some consider the Europa League to be a poisoned chalice due to the Thursday evening games, sometimes with substantial travel involved, nevertheless losing to the Luxembourg minnows cannot have helped morale among the players, fans and for the club as a whole.
However, the shock 3 – 1 loss (on aggregate) is not the sum total of their problems this year, and that is turning a blind eye to the fact that in 2012 after failing to reach an agreement with creditors which led to Rangers entering the process of liquidation, they were relegated to the lowest tier of Scottish football. No indeed, there was worse to come.
On the 5th July this year, after a seven year legal battle, the Supreme Court held Rangers liable for unpaid tax amounting to a wince-worthy £46.2 million that should have been paid to HMRC over the years 2001-2009. Admittedly, this sum is below what most English premiership clubs are now paying for star players – but an unplanned tax bill – whatever the amount is rarely welcome.
The dispute — known as the 'big tax case' — centred on Ranger’s use of structures known as employee benefit trusts (EBTs) to pay players and staff in loans between 2001 and 2009. HMRC said it missed out on £46.2 million because the club used payments to EBTs in Jersey to fund tax-free loans to Rangers’ employees.
The Supreme Court held that these funds should be treated as remuneration and as a result should have been subject to income tax, whether paid to the employee himself or a third party. This is a very good example of HMRC’s drive to honein on schemes whose aim is, as some would argue, to mitigate their tax exposure.
Since the judgment, HMRC have announced that the decision has had 'wide-ranging implications for other avoidance cases' and it would not be surprising if HMRC continued their efforts to close down schemes that they deem aggressive.
However, HMRC is extending its reach; it is no longer solely the direct users of these schemes who will be subject to penalties. A recent consultation has indicated that those 'who sought to make a profit from enabling these schemes' are also going to be on HMRC’s radar.
This change has been included in the Finance (No 2) Bill 2017 – a bill which has been delayed as a result of Theresa May’s snap election, but is expected to come into force later this year.
Rangers is licking its wounds, but let’s see whether they can pick themselves up after a fairly disastrous start to the footballing year and knock Celtic off their perch.
Colin Senez is an associate at boutique private wealth law firm Maurice Turnor Gardner LLP.