Revenue and Customs Commissioners -v- Murray Group Holdings Ltd & others  CSIH 77
In one of the most eagerly anticipated decisions of the year, Scotland’s Court of Session has overturned two previous Judgments to rule that monies paid into an employee benefit trust were in fact taxable earnings subject
to PAYE rules.
Scrutiny of tax avoidance schemes, once the preserve of broadsheets and the back-benches, continues to gather pace. Whilst questions over the arrangements of high profile companies such as Google or Starbucks may have increased public
awareness on the issue, it is rare that a legal case, north of the border, would garner such interest. This of course changes when the decision concerns the players of one of Glasgow’s two football titans, Rangers F.C.
As with most tax cases, the decision concerns a complex set of facts. However, few people will need any introduction to the central issue at hand: footballers’ wages.
Professional footballers can earn astronomical sums of money, with many players earning more in seven days than the average UK worker makes in a year. Their status as higher rate taxpayers goes without question and, despite the club’s
recent demotion and subsequent climb up the leagues, the players at Rangers F.C. were no exception.
However, in order to minimise or remove tax liabilities on income, a scheme was devised whereby the club would pay money into a trust rather than to the players themselves. This trust would then make payments to sub-trusts of which
the players, or their families, were the beneficiaries. The sub-trusts, of which the players were often the protectors, would then make loans to the players, or their families, in sums equal to the amounts paid into the trust. According to the scheme, the
monies advanced to the players were loans made at the discretion of the trustees and therefore not payment of earnings which would be subject to income tax.
In a lengthy Judgment, the Court of Session rejected the findings of both the First Tier Tax Tribunal and the Upper Tribunal which had previously found in favour of the scheme’s operation.
Relying on the decisions in v  1 WLR 409, andv2014] SC 271, it was found that the scheme amounted to a mere redirection of earnings which did not remove the liability to pay income tax. At paragraph 80 of the Judgement, it was stated:
“the crucial question in practical terms was whether the funds had been placed in a position where as a practical matter they might be spent by the employee as he wished; it was at that point that the employee could be said
to obtain the benefit of the funds. Thus it was the fact that the employee had practical control over the disposal of the funds that was sufficient to constitute a payment for the purposes of the PAYE legislation.”
The money placed into the trusts by the club was to represent payment for services rendered; goals were scored, tackles were made and money was paid. Despite the involvement of the trust scheme, the monies were classed as earnings
and were therefore taxable.
Why is this important?
The Rangers F.C. employee benefit trust is the first instance of HMRC succeeding on appeal in a case which it had previously lost. It remains to be seen whether the decision will open the floodgates to a raft of litigation brought
by HMRC, however it should be noted that the Government has made several recent statements in Parliament that it intends to ensure that everyone, be it companies or individual high earners, pays the amount of tax that they are due to pay. This statement of
intent is also practically implemented by the introduction and use of Accelerated Payment Notices (“APNs”) that remove the cash flow advantages of holding back payment whilst the legitimacy of an avoidance scheme is adjudicated.
This case will sound alarm bells not simply to the many high profile footballers who are likely to use such schemes, but to many employees or companies who have been advised to utilise employee benefit trusts.
If you have been advised to participate in an employee benefit trust, or have received APNs from HMRC which require a response within 30 to 90 days, it is essential that you seek legal advice. For more information about the above
or for practical advice on this or any other aspect of banking and financial disputes, please contact our Banking & Financial Regulation Team on 0161 829 2599 or email