Winning Result for HMRC in “the big tax case” against Rangers Football Club

HMRC has won a landmark victory in a tax avoidance case dubbed “the big tax case” against Rangers Football Club. Five judges unanimously backed HMRC in its lengthy dispute with the Glasgow club over its use of Employee Benefit Trusts (EBTs) to pay £47m to staff and players from 2001 to 2009. HMRC contended that these payments were earnings and as such were taxable income.

Rangers Uses Offshore Trusts to fund tax-free loans to directors

Rangers, which went into administration in 2012, used payments to offshore trusts (EBTs) in Jersey to fund tax-free loans to directors, managers and players. Two tribunals in 2012 and 2014 had previously found in Rangers’ favour, but the Court of Session found in favour of HMRC after an appeal in 2015. Accountancy firm BDO, which acted as liquidators when Rangers went into administration in 2012 over an unrelated tax dispute, was allowed to appeal to the Supreme Court. The judges unanimously dismissed the appeal and ruled in favour of HMRC that the payments made into EBTs were taxable income under PAYE rules.

James Stephen, Partner at BDO, said: “Given the significance of the matter and the support and direction received from creditors and the liquidation committee, we believe taking the case to the Supreme Court has been the correct course of action. We will now engage with HMRC on adjudicating its claim.”

HMRC brought the case against RFC2012, the liquidated company whose assets were transferred to a new entity while in administration, and the verdict will mean that RFC2012’s ordinary creditors will receive less money from the proceeds collected by BDO as HMRC is now owed more money.

What is an Employee Benefit Transfer (EBT)?


These are typically used by companies to pay cash into trusts tax-free, which is then used to provide employee benefits, such as loans. HMRC argues that this is simply another way of paying staff and wants to make sure that income tax and NICs are paid on the full amount of the benefits received.

These types of offshore trusts have been used by most investment banks for around 20 years and it’s estimated that banks and other companies have put as much as £5bn into EBTs free of tax. In 2010, legislation was introduced to clamp down on EBTs and companies were given the opportunity to sign a deal with HMRC over their unpaid taxes. HMRC is still pursuing those who didn’t. This landmark verdict allows HMRC to pursue other football clubs and other companies unrelated to sport that have used EBTs, without having to take further legal action as the decision of the Supreme Court is a final and binding decision that can be relied on by employers and advisers.

Companies that still haven’t taken the chance to reach a settlement on their tax debts are now being urged to do so as a result of the Supreme Court ruling.

David Richardson, Director General of HMRC’s Customer Compliance Group, said: “This decision has wide-ranging implications for other avoidance cases and we encourage anyone who’s tried to avoid tax on their earnings to now agree with us the tax owed.”

Sir David Murray, Former Rangers Chairman, said: “He was hugely disappointed.”

He added: “The decision will be greeted with dismay by the ordinary creditors of the club, many of which are small businesses who will now receive a much lower distribution in the liquidation of the club (…) than would otherwise have been the case.”

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