HMRC has won its battle with Rangers over the club’s use of Employee Benefit Trusts with a verdict that could have a profound effect on similar tax avoidance schemes.

The Scottish Supreme Court recently ruled on the Rangers’ case and we’ve received a number of calls about the implications so we’ve summarised our thoughts below.

More than £47m in tax free loans was paid to players, managers, and Directors between 2001 and 2010. HMRC argued that they were earnings and should be taxable. With the decision of the Supreme Court being unanimous.

What next from HMRC?  Follower Notices?

A Follower Notice can be given to a person who has used an avoidance scheme that has been shown in another person’s litigation to be ineffective. A senior governance panel from HMRC will consider whether it is appropriate that the principles or reasoning established by this ruling allow them to issue Follower Notices in relation to other trust based planning arrangements.

Given the wide-ranging nature of the decision from the Supreme Court, we anticipate HMRC will seek to apply this as widely as possible.

If HMRC do issue Follower Notices the recipient has 90 days to take corrective action – this is described as ‘entering into a written agreement with HMRC to relinquish the denied advantage’ – commonly referred to as ‘settlement’.

If the taxpayer does not ‘settle their dispute’ within 90 days they will incur a penalty equivalent to 50% of the additional amount due or payable in respect of the tax/NIC’s following corrective action.

How to proceed

The decision to settle or continue the dispute is entirely the clients.

However the list below summarises some of the potential implications of continuing with the dispute which it’s worth building into any decision making on whether to settle:

  • Follower Notices and penalties
  • Serial Avoiders legislation and associated administration
  • HMRC Naming and Shaming announcements
  • Further accrued interest and penalties
  • Increased IHT charges
  • HMRC’s ever hardening stance on settlements
  • 2019 loan charge on outstanding loans

Next steps

If you or your clients want to explore the settlement option we strongly advise that you talk to us before approaching HMRC to resolve this matter. In our experience, the calculations prepared by HMRC are unlikely to be the most advantageous for the company seeking to settle.

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Call us on 0115 778 8533 for a free consultation.

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