In the news – Glasgow Rangers

rangers-fc-300x180Glasgow Rangers’ recent tax problems cannot have passed unnoticed and many must be wondering what has been going on.  There is the ‘simple’ matter of what HMRC state is unpaid PAYE tax on salaries paid by Rangers but there is also a murkier situation which is the subject of the case currently being heard before a tax tribunal.

The case involves an Employee Benefits Trust (EBT), a scheme which HMRC have never liked but have been unable to challenge in the past (so badly have HMRC done in their challenges that in December 2010 they simply changed the law to effectively end the schemes).

When money is transferred by an employer to an EBT, it is no longer the property of the employer.  It is the legal property of the trustee.  Business owners could deposit large amounts of company profits in the trust and then they (or chosen employees) could apply to the trustee for a loan.  The borrower pays only a nominal interest rate on the loan (or tax on the benefit in kind).  This is a fraction of the tax the borrower would have paid had he received the money as salary or a bonus.

However for the scheme to work such payments cannot be tied to contractual obligations e.g. salaries etc.  This requires a lot of trust between the directors, employees and Trustees.

The problem for Rangers was that footballers and their agents lacked that trust. Amounts for salaries, bonuses etc were all the subject of written contracts and the existence of these contracts showed that the payments to the EBT were for contractual payments which would normally be subject to PAYE and NIC. A further feature of the scheme is the (unwritten) expectation that the Trustees would never ask for the loan to be repaid.  As well as the written contracts, there are rumours that the footballers’ agents insisted on a ‘no repayment’ agreement in writing.

So how much might Rangers owe if they lose the case?  Over the last ten years they’ve paid around £48m into the trusts. But it isn’t clear if HMRC will treat this as ‘net’ or ‘gross’ salary so tax and NIC could be anywhere between £24m and £42m. Then there’s interest and penalties.

But fans of other football clubs shouldn’t be too quick to laugh at Rangers’ misfortune.  It is believed that as many as ten English Premier League teams used similar schemes and if HMRC win against Rangers, they are certain to be looking for other teams to take on!

The lesson to learn is that while legal tax avoidance is a useful tool to help keep more of what you have earned, you HAVE to listen to the advice you are given and follow it to the letter.

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