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After years of legal wrangling, the so-called “Big Tax Case” will be decided when, on 5th July 2017, the Supreme Court decides on the case of Rangers FC (Old Company) v HMRC.
The case relates to the use of offshore Employees Benefit Trusts (EBTs) in which employers could pay staff and and avoid paying income tax and national insurance.
Basically, the employers make payments into the offshore EBT on behalf of the employee. Then the EBT would make a ‘loan’ to the employee. A loan is not defined as income under the UK Tax Code and would not be susceptible to Income Tax and National Insurance.
This scheme has been in existence for quite a while and has been used by a number of freelancers, football clubs and other businesses to avoid paying employment taxes.
HMRC have been seeking to stop this scheme for a while. They consider that the ‘loan’ is a payment of a salary and, therefore, would like to see this salary grossed up for Income Tax and National Insurance.
During the 1990s and early 2000s, Rangers FC were very successful after signing a number of top Dutch players like the De Boer brothers. The only way that they could afford to pay the wages of such stars was to use the EBT scheme.
During the years the club was using the scheme, it has been estimated that around £50m worth of payments were made via the EBT scheme.
Around six years ago, HMRC demanded that the club pay the income tax on the EBT players. With no other choice, the owners of Rangers FC went into liquidation.
A new company was formed to take over ownership of the club which had been relegated to Scotish League Division 3 as a result of the liquidation of the ‘old’ Company.
It was the liquidators of the ‘old’ company, BDO, who first brought the action against HMRC.
In the latest hearing at the Court of Session in Edinburgh in November 2015, the Court decided in favour of HMRC but granted BDO permission to appeal to the Supreme Court.
The decision made in the Supreme Court will be binding.
Whatever, the decision on 5th July 2017, the fallout will be huge. HMRC have already gathered evidence of other taxpayers using the EBT Scheme. If they win the case, then thousands of taxpayers will find large demands from HMRC coming through their letterboxes within days!
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