Is the forthcoming Supreme Court decision in the “Rangers Case” (Murray Group Holdings and others v HMRC  CSIH 77) still important? New legislation will bring benefits from employee benefit trusts and similar trust established for self employed persons into charge in any event. Maybe the opinion is not as important as it once would have been. Inevitably though, many have undertaken “planning” to avoid the new charge and therefore the decision will remain important for them as well as those who face accelerated payment notices (“APNs”) or who are still under investigation.
Why? The importance of the case is because the Court of Session found that the cash payment made by the employing company to the trustee was in consideration of services by the employee and thus had been earned by the employee. The practical impact of this concept is that it could equally apply to those trusts set up to provide benefits for self employed persons, commonly known as remuneration trust or commercial benefit trusts.
The court of session noted that the critical feature of an emolument and of earnings is that it represents the product of the employee’s work – personal exertion during employment. It was not relevant that the payment was made to a third party. The redirection of earnings occurred at the point where the employer paid a sum to the trustee. It does not matter whether the employee receives funds through loans or whether funds are invested – it has no bearing on the liability that arose in consequence of the redirection. It was also immaterial that the employee had no contractual entitlement to the sums paid to the trustees because gratuities (relating to duties) are subject to income tax.
The principle arose that if an employee or self-employed person instruct that the payment of money that he has earned should be made to another person he is still obliged to pay income tax and NICs on that sum.
If HMRC have continued success, many taxpayers are going to feel very hard done by. I sympathise because those that undertook EBT or similar planning did so based on the outcome of case law and legislative changes. The main cases were Dextra Accessories Ltd v Macdonald, (2005) 77 TC 146 and Sempra Metals Ltd v Revenue and Customs Commissioners, . The Murray Group Holdings of companies used the EBT structure between 2001/02 and 2008/09 and based on the law as understood at that time, PAYE would not have arisen on the full amount of loans made.
It might be publicly acceptable to tackle tax avoidance although HMRC and the Government have a responsibility to fulfil their role properly and to introduce legislative changes sooner! The irony is that taxpayers continued establishing EBTs under the then believed safety of Dextra and Sempra. HMRC did not legislate and as a result enormous resources have been deployed to encourage settlements. It is the inability of HMRC to effectively introduce legislation that has resulted in a loss to the Revenue.