Not a football fan? Then you might’ve missed the recent defeat of Glasgow Rangers Football Club by the Edinburgh Court of Session. Nope, not a charity friendly – it’s the result of a long-running dispute about the club’s messy finances, mostly focusing on its use of Employee Benefit Trusts (EBTs). It’s worth keeping up with the score – what’s happening, why and what it means.
What’s EBT?
Essentially, it’s a now-banned way for high earners, like pro footballers, to make more on their income. Companies pay part of their employees’ earnings, like bonuses or share options, into an offshore trust, where it increases in value while cutting out pesky costs like income tax.
So a tax avoidance scheme then?
HMRC certainly thought so. The Chancellor sought to abolish them with the Finance Act 2014, which eliminated any benefit from holding an EBT, and reap the tax rewards.
What happened at Rangers?
Rangers took full advantage of EBTs between 2001-10, but thanks to the legal changes, the game’s over. The club claimed that EBT spoils were loans, so not vulnerable to income tax. But HMRC was having none of it, and the Court of Session ruled in its favour, citing ‘common sense’. That’s one huge income tax bill for Rangers.
Is this decision final?
Rangers is preparing to appeal the decision. The appeal might not be granted, but even if it is, it’s not great news for the club. Appealing is a long and expensive process – especially for a company already being administered by liquidators.
Another big business is in trouble with the tax man. What’s so special this time?
Around 5,000 companies are affected by the EBT ruling, so anyone involved in EBT planning would be wise to keep an eye on the case. The total amount due is estimated at more than £7bn, so the government’s unlikely to let this one go. HMRC offered an early settlement deal, but this window of opportunity closed on 31 March 2015, so now claiming any EBT funds will cost the full whack in income tax.
The Rangers decision, if upheld in the Court of Appeals, will likely set a precedent and justify HMRC sending out Accelerated Payment Notices (APN) to companies and individuals involved in EBT planning.
Wait – what’s an APN?
It’s a type of tax bill designed to eliminate the cash advantage of drawing out litigation, forcing the defendant to pay up within 90 days. If you find yourself in this position, make sure to check the APN calculations are right. Sometimes, even the taxman makes mistakes.
Should I be worried?
The bottom line is, HMRC is going to want its money. And as they say in the movies, there’s an easy way and a hard way. It’s difficult to know what to advise without hearing the individual details, so if you’re concerned, get in touch with My Accountant Friend. We can take a look at the figures and talk you through your options. Even if you do find yourself staring down the barrel of an APN, you still have choices.
