The Rangers tax case regarding the remuneration of Rangers Football Club employees through an employee benefit trust between the tax years 2001/02 and 2008/09 has been ruled in favour of HMRC by the Supreme Court on 5 July 2017.
The case involved a remuneration trust set up by the club under which employees received loans that were not subject to income tax or Class 1 National Insurance contributions. HMRC argued that the sums paid to the trusts as remuneration should have been subject to tax.
Although the scheme constituted tax avoidance due to employees only receiving a loan of the money paid to the trust, the scheme has avoided liability to income tax and NICs. This was ruled by the First-tier tribunal in 2012 and was upheld by the Upper Tribunal in 2014.
However, on the appeal from HMRC in 2015, the Inner House of Court of Session has decided that “income derived from an employee’s work” was “assessable to income tax, even if the employer agrees that it’d be redirected to a third party”.
The key question highlighted by the Supreme Court was whether remuneration was taxable as earnings when paid to a third party in cases where the employee “had no prior entitlement to receive it himself”
In the judgment, the court concluded that “the sums paid to the trustee of the Principal Trust for a footballer constituted the footballer’s emoluments or earnings”
The ruling will have a dramatic impact on football and the business world as this judgment gives HMRC the authority to pursue businesses for income tax without the need to go on board with further series of legal actions. The process of issuing Follower Notices to recoup payment of what is expected to be tens of millions of pounds in income tax will then begin almost immediately.
HMRC will be encouraged by this judgement as it expands its ongoing enquiries into football’s use of image right payments.
Although a number of leading clubs have sought to reach settlement with HMRC before the Supreme’s Court decision in the Rangers case, the judgment could have serious implications for other football clubs that have no agreed such a deal.