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The Glasgow Rangers Tax Case

December 2012 - Finance. Legal Developments by Ogier .

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The Appellants, Murray Group Holdings (MGH), are a large holding company with diverse interests in over 100 companies including, until May 2011, Glasgow Rangers Football Club.  Given Rangers' involvement and their subsequent administration, this case has been widely publicised and has become known as the Rangers tax case.

The case centres around an employment remuneration trust set up by MGH in April 2001 for the benefit of employees and their families.  Effectively, companies within MGH would make payments into the trust, they would then make requests that the trustees set up sub funds for specific, high performing, employees and their families.  Invariably, shortly after the sub fund was created, the employee would then make a request to the trustee for a loan.  The loan was made at commercial rates on a discounted basis.  The Appellants had stopped using the scheme some years earlier but there were, at the date of the hearing, 108 sub funds in place and approximately £48m had been paid through the trust.

The advantages of this structure were that the payments were not declared as an emolument to the employee's earnings, the employer did not pay PAYE or NIC on the payments into the trust and the loan was effectively a debt in the employee's estate for inheritance tax purposes.

HMRC disagreed with this analysis and issued assessments based on their understanding that the payments were emoluments and therefore PAYE and NIC were due.  Notably, the assessments resulted in a £14m tax bill for Rangers which, by the time the case was heard, had increased to £94m with interest and penalties.
The Tribunal heard evidence from the directors and employees of MGH, lawyers for Rangers players, tax advisors and the company accountants and the trustees but interestingly enough not from the advisors who set the scheme up.  For the purposes of the case the Tribunal did treat distinctly the payments made to employees and those made to Rangers players but as the judgments were largely the same we will view them together.

The HMRC case relied heavily on the doctrine laid down in W T Ramsay v IRC (1982) AC300 and in particular the general anti avoidance principle that any non-commercial element in a tax avoidance scheme should be struck out.  Thus in the case at hand, HMRC were purporting that the whole scheme was not commercial and should be struck out resulting in the employee being treated as though they received a direct payment which would be subject to tax and liable to NIC.  It fell to the Tribunal to decide on three main issues:-

1. Was the trust valid?
2. Was HMRC correct in applying the doctrine in Ramsay?
3. Were the payments into the trust earnings or emoluments subject to tax and liable to NIC?