Thursday, 5 November 2015

Free 'Loans' Scandal

Image result for free loans + images

Here's how the BBC reported the news that 'common sense' has finally prevailed in the big tax case involving Glasgow Rangers in which the football club paid their players and senior staff in tax-free loans that never had to be repaid.

What's amazing is that such a major public institution could have believed that this kind of tax dodge was ever fair or reasonable - cheating, as it did, the public purse out of tens of millions of pounds. 

So, the next time your'e asked the question "When is a loan not a loan?" You'll know the answer: "When it doesn't has to be repaid." 

Although it seems crazy that things had to go all the way to the Court of Session (Scotland's senior civil court) for the issue to be decided.

HMRC wins Rangers tax case appeal
BBC Glasgow & West Scotland

Image copyright - SNS Group Image caption - The case concerns the use of Employee Benefit Trusts

HM Revenue and Customs (HMRC) has won a ruling that Rangers' use of Employee Benefit Trusts (EBTs) was illegal.

Rangers used the scheme from 2001 until 2010 to give millions of pounds of tax-free loans to players and other staff.

In what became known as the "big tax case", HMRC claimed these were salary payments and subject to tax.

HMRC lost its appeals at tax tribunals in 2012 and 2014. Now three judges at the Court of Session in Edinburgh have upheld their appeal.

The appeal was heard by Lord Carloway, sitting with Lord Menzies and Lord Drummond Young.

The judges ruled that if income was derived from an employee's services, in their capacity as an employee, it was an emolument or earnings and "thus assessable to income tax".

'Commons sense'

Delivering the opinion of the court, Lord Drummond Young said: "That accords with common sense.

"If the law were otherwise, an employee could readily avoid tax by redirecting income to members of his family to meet outgoings that he would normally pay: for example to a trust for his wife... or to trustees to pay for his children's education or the outgoings on the family home.

"The funds are ultimately derived as consideration for the employee's services, and on that basis they are properly to be considered emoluments or earnings.

"We are of opinion that the sums received by the trustee of the Principal Trust, and in due course by the trustees of the sub-trusts, amounted to a mere redirection of income and thus constituted emoluments or earnings of the employees in question."

Image copyright - SNS Image caption - Rangers began using EBTs under Sir David Murray

In a statement, HMRC said it had pursued the proper course of action.

"HMRC has a responsibility to make sure people pay what they owe and will always challenge tax arrangements where we do not think they work.

"As supported by the decision in this case, HMRC's view is that Employment Benefit Trust avoidance schemes do not work.

"HMRC has collected over £1.3bn in tax through 1,500 users of similar schemes."

The statement concluded: "HMRC will continue to settle appeals by agreement where appropriate but will if necessary continue to litigate cases where settlements cannot be agreed.'

Previous owners

Rangers were owned by Sir David Murray when the club began using EBTs.

HMRC claimed they were an illegal tax avoidance scheme and that the club owed tens of millions of pounds in unpaid tax, fines and interest.

Murray's firm, Murray International Holdings (MIH), was defending the claim when he sold Rangers to Craig Whyte for £1 in 2011.

Under Mr Whyte's stewardship, the club went into administration in February 2012 amid a cash crisis over unpaid tax - unrelated to the big tax case.

Liquidation followed months later after an agreement could not be reached with creditors.

A consortium led by Charles Green later purchased Rangers' assets and the team began season 2012/2013 in the Scottish Third Division.

In November 2012, a first tier tax tribunal ruled that Rangers use of EBTs under David Murray was legal.

In February 2013, HMRC lodged an appeal against this decision.

In July 2014, upper tier tax tribunal judge, Lord Doherty, dismissed the appeal but referred several issues back to the original panel.

HMRC then launched a third appeal which has now been upheld by judges at the Court of Session in Edinburgh.