On 5th July, the Supreme Court ruled in favour of HMRC in its seven year tussle with Murray Holdings (aka Glasgow Rangers FC, now in liquidation.) The case involved Rangers making loans to players and staff via an offshore Employee Benefit Trust between 2001 to 2009. Whilst this outcome was expected (it upheld the 2015 ruling of the Court of Session), the ripples of this binding ruling will reverberate for some time, so we will examine a few aspects of this grudge match that need extra time to settle it.
- HMRC always viewed this as a landmark case and were determined to win at any cost for example challenging both earlier Court rulings (First Tier, 2012 & Upper Tier, 2014) that went against them. Money was seemingly no object to HMRC and despite repeat Freedom Of Information requests, the total cost to the taxpayer of the protracted legal wrangling has never been disclosed.
- Ironically, the ruling has almost no bearing on the ability of HMRC to collect “tax in dispute” any quicker than had they had lost. The Disguised Remuneration (DR) legislation in 2010 “killed off” loans from EBT’s being tax efficient, however it was not retrospective in nature so HMRC could not collect additional tax on loans made before 2010. In 2014, HMRC were empowered to issue APN’s that retrospectively taxed loan recipients without the need to go to Court. There is further retrospective taxation on contractor loans expected in 2019.
- After the ruling, David Richardson (HMRC Director General of Compliance) proclaimed “HMRC will always challenge contrived arrangements that try to deliver tax advantage never intended by Parliament.” This subjective stance is a key aspect of how HMRC tackles tax avoidance. This can cause frustration for taxpayers who feel the amount of tax due must always be objective –i.e. in accordance with prevailing tax law as opposed to a negotiation. Arguing as to what Parliament intended when they once drafted tax legislation provides no certainty whatsoever for tax payers. Interestingly in the ruling, the Judges essentially mirrored HMRC’s contention when they said a “purposive approach” must be taken in these matters, in effect saying the key was to interpret the spirit of the law rather than stick to the letter of it.
- Critics say the “elephant in room” for the Government is the amount of ambiguity within the UK’s arcane tax laws which requires all this interpretation. It has been claimed this opaqueness not only affords contractors the opportunity to avoid tax but also large Corporates and high net worth individuals. Overhauling and simplifying tax laws in line with modern working practices would help to tackle the issue at a “root and branch” level as opposed to bolting on short-term, retrospectively focused quick fixes.
- The big question then is “What happens now?” Many other professional UK football clubs used EBTs to reward players and staff so HMRC will pursue them with renewed vigour. More broadly, contractors who used offshore EBT loan schemes (or employers who offered them) pre-2011 who have not settled with HMRC or have not paid an APN for that period should consider seeking professional advice. Users of any post 2011 arrangements may also experience turbulence going forward as we expect an emboldened HMRC will write out to tens of thousands of contractors currently under investigation (using their very effective programme of psychological nudge tactics) to remind them the Courts have once again found in their favour and to implore them to settle at the earliest opportunity.