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Supreme Court decides against Rangers Football Club tax avoidance scheme

5th July 2017

Starting in 2001 Rangers Football Club took part in an arrangement known as a remuneration trust. Sub-trusts were set up for the families of individual footballers. In practice money from a sub-trust was lent to the relevant footballer on the basis that it was repayable with interest from his estate when he died.

A main aim was to avoid income tax and national insurance contributions. HMRC did not accept that the scheme worked.

The First Tier Tribunal and the Upper Tribunal (specialist tax tribunals) held that the scheme was effective in avoiding liability to income tax and national insurance contributions because the employees had only received a loan of the moneys paid to the trusts. The Scottish Inner House, however, took a broader view and allowed HMRC's appeal. It held that income derived from an employee's work is assessable to income tax, even if the employee agrees that it should be redirected to a third party.

On 5 July 2017 the Supreme Court agreed with the Inner House. In particular it noted:

  1. Provisions in the tax code imposing specific tax charges (such as specific provisions of the tax code which deem the benefit of loans to be earnings) do not militate against the existence of a more general charge to tax.
  2. There is no basis for a general rule that a "payment" is made for the purposes of PAYE only if the money is paid to or at least placed unreservedly at the disposal of the employee.
  3. The modern approach to the interpretation of statutes is to have regard to the purpose of a particular provision and interpret its language, so far as possible, in a way which best gives effect to that purpose. In the past, in contrast, taxing statutes were interpreted in a literalist and formalistic way. Since 2005, however, it has been established that the courts must now adopt the same purposive approach to the interpretation of taxing provisions that they apply to other statues, and must analyse the relevant facts accordingly.
For commercial reasons some businesses are interested in setting up arrangements such as employee benefit trusts. There has been more than one attack, however, on their tax benefits, including changes in the law. This judgment confirms that they should not be set up for tax avoidance reasons.


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