You don’t need to have a season ticket at Ibrox to be familiar with the difficult few seasons that Rangers FC has faced, both on and off the pitch. Despite securing promotion to the Scottish Championship earlier this year, the club and its fans are still feeling the effects of this famous name going into administration in 2012.
Rangers’ financial woes were in no small part a result of a dispute with HMRC. HMRC attacked Rangers’ use of an employee benefit trust structure, which used sub-trusts to lend money to its employees, including some players. HMRC contended that the structures were not really loans and so should be taxed as employment income, with PAYE and NICs due accordingly.
In October 2012, HMRC went one nil down when the First-Tier Tribunal rejected HMRC’s argument. Its decision on the facts was that the substance of the arrangements was that the employees were entitled to loans, nothing more and nothing less. If the arrangements were in fact loans, that left the FTT with no alternative but to decide that those loans should be taxed according to the statutory rules on employee loans. Even applying the Ramsay principle (which allows the court to look beyond the individual components of arrangements and apply the relevant legislation to the series of transactions as a whole) didn’t offer HMRC an opportunity to score an equaliser, let alone a winner.
HMRC appealed, both on the finding of fact and the application of Ramsay, and the Upper Tribunal has now published its decision. Disappointingly for HMRC, the Upper Tribunal has backed both the FTT’s decision and the methodology it applied in reaching its conclusion.
Other than some minor points which have been remitted to the FTT for further consideration, it is a huge victory for Rangers. It does beg the question as to the validity of HMRC’s dispute in the first instance, and how the world of Scottish football would look today if the administration hadn’t occurred, but that is a question that goes way beyond the scope of this blog… Watch this space as to whether HMRC appeals the decision further.
(If, like us, you are a little bit of a tax nerd, the judgment (found here) is well worth a read, not least for the detailed consideration of the Ramsay principle.)