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Supreme Court case sees HMRC issue important decision in relation to disguised remuneration

Last month, we featured an article about disguised remuneration loan schemes, reminding our readers of the tax authority’s view that ‘if it looks like a duck and walks like a duck, it probably is a duck’.

Following on from this, a recent Supreme Court decision in relation to such schemes involving HM Revenue & Customs (HMRC) and Rangers football club has reiterated the point we were trying to get across and, furthermore, could have important ramifications for such schemes going forward.

In the case in question, HMRC issued what is known as Spotlight 41 following a previous decision which was later appealed by the football club.

Reports suggest that football players and club executives were provided with loans from an employee benefit trust (EBT) which ‘topped up’ their pay. Such loans were essentially never intended to be repaid – and only the notional interest was taxed on a P11D form, which was effectively treated as unpaid interest.

The EBT was reportedly made via a side-letter which the club at first tried to conceal from the Scottish Premier League. Later, Rangers argued that the loans could not be deemed remuneration both to HMRC and in terms of rules laid out by the SPL – a view which was not at all shared by HMRC.

The Supreme Court sided with the Revenue, finding that, as the loans were not repayable, they were indeed disguised remuneration. Due to this, assessments were raised into unpaid tax and National Insurance Contributions (NICs).

Shortly afterwards the football club appealed the decision, despite later going into liquidation midway through the legal battle.

The club’s liquidators continued to contest the decision to no avail, and the Supreme Court found that the payments could be considered a ‘redirection of earnings’ and were therefore both taxable and subject to NICs.

HMRC has since warned that the outcome of the case now applies to a broad spectrum of disguised remuneration tax avoidance schemes.

It has confirmed that this will be the case going forward regardless of what type of third party has been used – whether this be an EBT, an employer-financed retirement benefits scheme (EFRB), or a contractor loan scheme.

In light of this, taxpayers who wish to get out of such schemes and who do not already have a contact at HMRC are being urged to contact the tax authority immediately.


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