Given that it began with payments being made in 2001, the 16-year-saga that is the Rangers case is remarkable for ending in less than as many minutes in the Supreme Court on July 5th.
The result? A crushing win for HMRC on all points. But will this be a “win” they ultimately regret?
In particular, the judges held that:
·Tax provisions relating to specific items of income, do not exclude a general charge
·Judges must pay attention to the words in the tax statute
·A purposive approach must be adopted in determining tax liability.
So what does this mean in the context of this case and more widely?
The judges decided that to be a taxable amount of remuneration, money does not need to be paid to the employee. Payments made to third parties are just as much income of the employee as payments made directly to them.
The rules around the provision of benefits to employees, cannot be used to exclude the core tax charge in the payment as remuneration. Instead, the general rule that tax should be levied in respect of employee income is the one that governs.
In this instance, the risks that the various trusts and trustees may not act as expected was irrelevant and the employer should have deducted PAYE.
But the former Rangers Football Club is in liquidation. However it is thought to be sat in assets of around £40m. There will be other creditors but it now seems likely that HMRC will be able to collect a significant part of their outstanding PAYE assessments on the employer
This decision will have implications for both the historic HMRC enquiries into contractor “schemes,” and for the present crop of ‘tax-efficient’ offerings.
In fact, many historical contractor schemes share elements of the arrangement seen here. Employees, payments made as loans, PAYE scheme present, trusts, etc. Some details will vary but given the sweeping nature of the decision and the high level view adopted by the court, it seems that a lot of those details will be swamped by the requirement to view the whole arrangement. In particular, the reliance upon interpreting small sections of the law to provide an exemption, looks to have been rendered irrelevant by this decision.
Contractors are being offered a range of schemes said to be tax-efficient at the moment. Those that rely upon re-characterising payments to employees in some non-taxable form will no doubt be carefully examining their terms. It would be a brave individual who takes on that risk.
Overall, it is a decision to be welcomed, highlighting that those who benefit from the arrangements used by contractors should be liable for a ‘fair share’ of the tax due. There is still the publication of the full decision to take place which will hopefully make clear the ability of HMRC to chase individuals and not employers for the tax due will be critical.