The former Glasgow Rangers Football Club[1], sought to pay bonuses to its players through loaning money to them from a trust, avoiding the need to pay Income Tax or National Insurance contributions on the payments. 

Facts of the case

  1. The club’s parent company set up an employee benefit trust (EBT).
  2. 108 “sub-trusts” were established within the EBT for the benefit of the footballers’ families.
  3. The club paid a total of £55.5 million and EUR5.3 million into the “sub-trusts”.
  4. Each “sub-trust” loaned money to the employee footballer. Loans were made without security for a term of ten years (which was expected to be renewable) and interest was payable at 1.5-2% above the base rate.
  5. In theory, the loan could remain outstanding until the employee’s death, when it would be a debt on the employee’s estate (and so reduce the inheritance tax charged). However, the loan would be repaid to the sub-trust set up for the employee’s family, and so their family would still receive the money.

The first decision

In 2012, the First Tier Tribunal (FTT) decided that the loans were real loans which footballers could have been made to repay. As such, the monies loaned should not be subject to Income Tax or National Insurance Contributions.

HMRC decided to appeal the FTT’s decision. They may have been encouraged by the long dissenting judgment of Dr Poon, who thought that the trust and loan arrangements amounted to an orchestrated scheme to pay bonuses while avoiding tax, so that the loans should be treated as earnings for tax purposes.

The appeal

On appeal, the Upper Tribunal decided that the majority in the FTT had applied the correct test in deciding whether the employees received loans or earnings. There was some element of orchestration, but the loan monies were not “unreservedly” at the disposal of employees.

While the “disguised remuneration” legislation means that from 6 April 2011, such schemes have ceased to be possible, HMRC have continued to pursue historical arrangements. The case may therefore have an impact on continuing litigation and settlement negotiations with HMRC. Employers who have operated similar schemes in the past are likely to take some comfort from this high profile decision.

HMRC continue to argue the case

HMRC have now asked for permission to appeal the case to the Court of Session. They have continued to state their belief that loans made from the EBT should be treated as earnings for tax purposes.

Tax avoidance is a high profile target for the Government – watch this space…

For more information, email

[1] HMRC v Murray Group Holdings and Others [2014] UKUT 0292 (TCC)

Leave a Reply

Your email address will not be published. Required fields are marked *

8 − 7 =

This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.