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Rangers FC and the tax case

Rangers FC and the tax case

Or a lesson for Contractor Accountants in when not to use an EBT (employee benefit trust).

If, like me, you follow Scottish football with the same enthusiasm a hamster has for tank warfare   – you may have missed the tax debacle north of the border. Before I go into what it all actually means – a word of warning. You can be pretty sure Rangers FC are not the only professional football club in the UK to have set one of these up. It could be your club next – so best be careful what you smirk at.

The history of the whole case is quite simple. About 11 years ago, the Rangers FC board of directors decided to have a scheme setup, whereby they could pay some Directors/footballers via an employee based trust. I say some – in reality we are talking about nearly all of them. The way this works is not unusual and there are many instances where the scheme is fine and being operated within understood tax limits. Basically, Rangers FC transferred money to the trust (so the money is no longer owned by Ranges FC) and the trust then “loans” it to the playing staff or Director. As the loan is repayable, the person concerned is taxed only on the notional interest the loan may have attracted. For example – you could be “loaned” £100,000 from the trust and only pay tax on the £2500 interest the loan could have earned.

So far – you are probably reading this thinking – “What a scam!! Why aren’t we all doing it??”. Well, there is a problem. The system only works if there is no contractual obligation to make a loan. The moment you have what is essentially a contract of employment, telling you to request a loan for appearance money – it is no longer really a loan. At that point it should be classed as part of your employed duties.

And that – ladies and gentlemen – is what the HMRC case is all about. HMRC argument will be the loans were made as a part of the individuals normal daily work and not as some sort of entrepreneurs investment scheme.

Another point to remember. The trust has been making “loans” to the individuals concerned. Who is to say the trust will not recall the loans now HMRC have come sniffing around for their due and proper??

The far-reaching consequences of this case are huge. HMRC are effectively looking for upwards of £25,000,000 in unpaid tax and national insurance. If HMRC prove their  case to the tribunal, they could require Rangers FC to pay the missing tax before any appeal is made. That would almost certainly lead to Rangers FC going into administration. My guess is Rangers FC are only the start of something bigger. It seems unlikely that Rangers FC are the only professional club in the UK to use an EBT for their football stars and Directors. In all seriousness – if the case goes the way of HMRC, we could see quite a different football landscape in 10 years time.

Matthew Durrant

By matthew on February 14, 2012

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