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Hearings take place at the Supreme Court in Rangers EBT case

Legal arguments have been heard by the Supreme Court this week in a case concerning whether payments made by Rangers Football Club plc (RFC 2012) to players and executives at the club were subject to income tax deductions.17 Mar 2017

The case centres on payments made by RFC 2012 into employee benefit trusts (EBTs). The payments were made by Murray International Holdings (MIH), the then owner of Rangers, and other group companies to employees between 2001 and 2009. Rangers International Football Club plc (RIFC), which was set up after RFC 2012 went into liquidation, is not a party to the case.

HM Revenue & Customs (HMRC) has challenged the legality of the arrangements and won a 2015 ruling before the Court of Session in Edinburgh in which the court held that the payments were "a mere redirection of emoluments or earnings" which should have been "subject to income tax".

RFC 2012 has appealed against that ruling before the Supreme Court. Judgments in Supreme Court cases generally are not issued for three or four months after hearings finish.

Tax expert Paul Noble of Pinsent Masons, the law firm behind Out-Law.com, said: "HMRC have viewed the use of EBTs as 'disguised remuneration', and relentlessly pursued the users of them on this basis. Even if the case were to go against HMRC here, however, the impacts would be somewhat diluted."

"HMRC’s recent tactics, including delaying and dragging out enquiries to place pressure on those targeted, mean that many users of EBTs will already have been forced to settle their case. In addition legislation will be introduced from 2019 to tax outstanding loans provided by the EBT to employees which will mean that irrespective of this judgement, a tax liability would crystallise if the loans remain unpaid," Noble said.

An EBT is a legal structure which is usually set up by an employer for the benefit of its employees and directors or their family members. They were historically used by many businesses, particularly hedge funds and banks that used them to manage tax payments on bonuses. HMRC has been targeting the abusive use of these structures for a number of years, as it sees them as a means of artificially lowering income tax and national insurance charges on remuneration to employees.

So-called 'disguised remuneration' rules took effect from 6 April 2011. They were introduced to tackle the use of trusts or other structures by employers as a way of avoiding, deferring or reducing tax liabilities. The rules created a charge to income tax where third party arrangements are used to provide payments in connection with an employee's current, former or future employment. Where this is the case, the amount will usually be deemed employment income which is taxable through pay as you earn (PAYE).