Rangers ruling kicks off HMRC action on disguised remuneration

HMRC is warning that it will take action against a ‘wide range’ of disguised remuneration tax avoidance schemes in the wake of the Supreme Court’s decision in the Rangers football club case, and has published fresh guidance for those making employment payments to a third party under such arrangements

On 5 July the Supreme Court released their unanimous decision about disguised remuneration tax avoidance schemes used by Rangers football club. This upheld HMRC’s view that Rangers should have deducted income tax and National Insurance contributions (NICs) from payments they made to the scheme, which was an employee benefit trust (EBT).

HMRC says its view is that this principle applies to a wide range of disguised remuneration tax avoidance schemes, no matter what type of third party is used.

This includes EBTs (including variants within these schemes where no loans are made from the EBT but instead the funds remain in, or are invested by, the trust); disguised remuneration routed through employer-funded retirement benefit trusts; and a range of contractor loans schemes.

Paragraph 39 of the court’s decision sets out the principle that employment income paid from an employer to a third party is still taxable as employment income.

It states: ‘Thus, if an employee enters into a contract or contracts with an employer which provide that he will receive a salary of £X and that as part of his remuneration the employer will also pay £Y to the employee’s spouse or aunt Agatha, I can ascertain no statutory purpose for taxing the former but not the latter.

‘The breadth of the wording of the tax charge and the absence of any restrictive wording in the primary legislation, do not give any support for inferring an intention to exclude from the tax charge such a payment to a third party which the employer and employee have agreed as part of the employee’s entitlement. Both sums involve the payment of remuneration for the employee’s work as an employee.’

HMRC says it intends to use this decision to take action against many of the disguised remuneration schemes, using what it describes as ‘the full range of our available tools’. This could include issuing follower notices and, if relevant, associated accelerated payment notices.

It will also include accelerating litigation where users continue challenging HMRC on their scheme.

In its latest ‘spotlight’ guidance HMRC strongly recommends users of such schemes to withdraw from the scheme and settle their tax affairs, in order to avoid the costs of legal action and minimise interest and penalty charges on the tax that should have been paid.

Taxpayers who are already speaking to someone in HMRC about the use of an avoidance scheme, or have a customer relationship manager, should contact them. Anyone who does not have a contact should email ca.admin@hmrc.gsi.gov.uk.

Guidance Disguised remuneration: a Supreme Court decision (Spotlight 41)

RFC 2012 Plc (in liquidation) (formerly The Rangers Football Club Plc) (Appellant) v Advocate General for Scotland (Respondent) (Scotland) [2017] UKSC 45

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