The great Rangers tax avoidance scheme

Income tax was introduced in the UK as a temporary measure in time of war. It’s now the foundation of civic society: to each according to his means, a fair contribution to funding the state.

Income tax, therefore, is not just for little people, as the rich with their offshore tax avoidance schemes might like to suppose.

Though, with the Commons public accounts committee currently enraged at the £5bn now bypassing the taxman, perhaps our well-heeled friends with offshore trusts and so forth are right – tax can be a lifestyle choice rather than a legal obligation.

Thus, most reasonable people would want the taxman to investigate systems where people are receiving large sums of money and not paying up to 40 or 50 per cent income tax which all the rest of us have to find – or have it found for us at source.

So it is that taxpayers would welcome the HMRC investigation of the now-liquidated former Rangers company into how it paid players and some staff who received funds/money from employee benefit trusts (EBTs). A tax avoidance scheme where wealthy footballers and also club directors received tens of millions without paying a penny in tax, seems too good to be true.

It may yet be proven to be so.

All reasonable people would therefore welcome the taxman examining tax avoidance on the industrial scale of Ibrox, not least as we close our libraries and cut services (in hard-hit areas like Govan) due to the alleged state of public funds.

And we still cannot  know finally whether the great Ibrox tax avoidance scheme was legal or not since the tax tribunal is subject to possible appeal. For now, it’s been deemed by two to one, legal on the key narrow point of law regarding what a loan is. This may change in due course should there be an appeal.

If we consider HMRC’s response, it is clear that an appeal is high on the agenda, and that they rightly point out they have lost merely “this stage” of their challenge. They say:

“We are disappointed that we have lost this stage of the court process and we are considering an appeal.  The decision was not unanimous and the diligence of HMRC investigators was acknowledged by the whole tribunal. HMRC is committed to tackling avoidance and it is right that we challenge the type of avoidance seen in this case.”

So Sir David Murray is bang on the money when he says there is no victory here.

This blog has sometimes criticised those in the past, who have been too willing to accept passively Sir David’s word. I’m delighted, therefore, to say now that everyone should heed Sir David when he says there are no winners here.

You cannot win or lose due legal process until it is duly concluded. This process, with possible appeal, has clearly not yet run its course.

All talk of victory is  like celebrating winning the cup minutes from time when you know the other lot could score and send the whole thing to extra time.

HMRC have the option to appeal and tax experts I’ve spoken to all say what is obvious: the highly unusual split decision per se provides potential for appeal. HMRC note the rare split opinion in their statement above – that’s no accident.

Potential appeal grounds too exist in all the penetrating criticism of the Rangers EBT scheme; its operation and the conduct of the club in the course of this long investigation.

Let us highlight just some of the central observations the tribunal made:

• the majority decision finds in favour of the taxman in the cases of five players (with the northern town aliases in the anonymised verdicts) over their contractual bonus payments
• a key finding is that the conduct of the appellants with regard to the investigation was obstructive: “The progress of the enquiry was protracted and chequered due to key documents being withheld or actively concealed.”

Or this, for example:

“Mr Red was an incredible witness. It would appear that he was obstructive in his conduct during the HMRC’s enquiry, and obscurantist in the way he gave evidence…”

And there are numerous similar examples.

• the operation of EBTs is comprehensively criticised from Jersey to Ibrox in terms of the agreements, oversight, and passivity of trustees
• the minority opinion is in line with established legal precedent: “The dissenting opinion adopts the approach set down by the decision of the House of Lords in Ramsay in 1981. By giving regard to the intentions of the parties entering the arrangements, and in the absence of commercial reality for the loan structure, the monies received by the employees via the trust constitute earnings for income tax.”
• On the issue of whether or not EBT monies were declared to the football authorities according to the rules, one opinion is unequivocal: side-letters, of course, had not been registered with the football authorities, the SFA and SPL. The spirit of their rules was that the whole contract terms should be registered.Suspiciously, no evidence was led as to who decided that the benefits in terms of the side-letters should not be registered. Non-registration of side-letters was incompatible with both authorities’ policing and disciplinary powers.”

This opinion will be of interest, given Lord Nimmo-Smith’s independent commission on just this issue, due to open on 29 January.

It makes the current Rangers owner Charles Green’s claim that this result undermines the commission look utterly bizarre.

HMRC may therefore appeal or may not. It could take a couple of months for them to decide.

More widely the club liquidators BDO will be exploring these lengthy, detailed and obviously highly critical judgements in forensic detail as they go about seeking potential sources of capital for creditors from the carcass of the dead old company.

BDO can look at directors’ duties and decide whether or not the directors were negligent in their handling of company funds, making gratuitous alienations and so on, with company funds. They are not bound by any HMRC concession that these EBT Loans were not sham trusts or sham loans – even were HMRC to concede this, and (subject to appeal) it is far from  clear that they do.

In short, Rangers play in Division 3 for one reason and one reason only: because of the financial management of the club’s directors. EBTs naturally attracted HMRC interest and thus became a major factor in rendering this great club virtually unsaleable (though far from the only factor), and contributing to its downfall.

HMRC told me this morning they have 56 days to appeal. Meanwhile the wider case for legislation on these loans looks even more overwhelming as the rest of us fork out more tax in return for spending cuts.

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