It's been well publicised over the last few days that Glasgow Rangers FC are on the verge of administration due to disputed tax bills. It's actually a story that's been ongoing for some time now, without making the headlines.
Very broadly, Rangers used an tax planning scheme involving Employee Benefits Trusts - EBTs. Rather than paying their players via PAYE, they paid the money into trusts. The trusts then lent the money to the players, enabling them to avoid paying most of the tax that they would normally be due to pay.
Ever since these schemes were introduced, they were controversial and many advisors wouldn't recommend them. There's a spectrum of tax planning, from the safe as houses (e.g. ISAs) to the very aggressive and borderline abusive. It was known that HMRC considered the EBT schemes to be off the scale at the abusive end and would try to prevent their use if they possibly could.
We've always said that a big problem with aggressive tax schemes like this is the years of uncertainty you'll have to endure before being sure they've succeeded - seven to eight years is a good rule of thumb before the processes available to HMRC and taxpayers are exhausted. For most of us, it's better to spend seven or eight years getting on with running our businesses, not worrying about tax schemes that may or may not work and very clearly lie outside the spirit of the law. Even if you do go ahead with such a scheme, you're well advised to keep the tax saved to one side, in case the scheme collapses.
Amazingly, Rangers are now attempting to blame HMRC for this drawn out process:
"Even if Rangers wins the tribunal, HMRC has made it plain that they will ‘appeal, appeal and appeal' the decision. The practical effect of this will be to plunge the club into years of ongoing uncertainty. It would also mean the club having to pay immediately a range of liabilities to HMRC."
Well, tough. That appeal process and the time it takes would (or at least should) have been laid out to them as a basic caveat when the scheme was put in place. It's no use crying about it now. If you attempt to use such aggressive tax planning, you have to be aware of the risks. Unfortunately, many taxpayers get blinded by the tax savings - which may, in this case as in many others, turn out to be illusory.
Agree with a lot of what you say, although EBTs also cover a range of aggressiveness. Just putting money into an EBT and making a genuine loan wasn't aggressive. Dextra and Sempra cases both suggest that this was entirely justifiable. What was aggressive was (a) trying to get a corporation tax deduction as well (b) pretending something was a loan when it wasn't and (c) finding ways to cancel the loan without an income tax charge. If Rangers were doing any of the latter 3 then I'd agree with you entirely. If they were just making genuine loans then I think that they are justified in complaining that HMRC are continuing to take the point despite having two cases from the higher courts (Dextra and Sempra) against them.
Also agree with you that the seven to eight year fight should have been explained at the outset. But there are plenty of bad-advisers out there who were selling these things and it may not have been.
Posted by: John Barnett | February 16, 2012 at 12:06 PM