Published on February 4 2013
AS Rangers fans digest the news that HMRC will appeal the result of the first-tier tribunal – the big tax case – perhaps the most pertinent question came from the chief executive of the new club, Charles Green.
“There is no money to be gained by HMRC as the old company has been liquidated so you have to ask why they are pursuing the matter further when the original EBT enquiry took years to reach a conclusion.”
It’s a brilliant question from Mr Green and one that cuts straight through to the heart of the matter.
The majority verdict in the first-tier tribunal, which investigated Rangers’ use of the employee benefit trust scheme (EBT) and sought to rule whether the practice – used to pay a portion of staff wages – was a breach of UK tax law, ruled that the majority of Rangers cases using the EBT tax avoidance scheme were legal.
HMRC’s view was that the practice was not within the law – which could make it tax evasion – and that the club owed the taxman a sum of £24m in taxes due, with interest and penalties applied, taking the total to somewhere in the region of £50m. While Rangers accepted liability for a number of cases, should the big tax case verdict stand it would result in a substantially lower tax liability and, importantly, a useless verdict for HMRC.
It’s estimated the UK struggle to tackle tax avoidance leaves up to £10.2bn lost, while HMRC point to damages to the economy of £14bn per year as a result of tax evasion. That represents £769 for every family. It is money drained away from public services.
During the 2012 budget speech, Chancellor George Osborne said: “I regard tax evasion and, indeed, aggressive tax avoidance, as morally repugnant,” while UK Prime Minister David Cameron has called for international action on the multi-billion pound problem.
Press coverage in Britain has focused on the tax affairs of big corporations Amazon and Starbucks, with public pressure on the companies to step up and pay, while attention has even been drawn to high profile celebrities who use tax avoidance practices, such as Jimmy Carr. In November 2012, HMRC sent letters to 1,500 people it suspected of using a particular tax avoidance scheme, the first time any such action has ever been taken by HM Revenue and Customs.
The cost of tax avoidance and tax evasion to the UK economy is a difficult pill to swallow in times of austerity. It is in the public interests to minimise those sums. It is the job of HMRC to pursue tax monies owed and the job of the government to introduce legislation that protects the public purse.
In Scotland, a number of fans of Rangers feel the former club is being victimised by HMRC’s decision to pursue this case. With Rangers now in liquidation, it is true HMRC will never receive any tax monies owed by the club, and it is also true that fighting this case will result in another bill for the taxpayer.
After the verdict of the first-tier tax tribunal was released, an e-petition was set up by Rangers fans calling for an inquiry into the handling of the case by HMRC. The petition received almost 40,000 signatures, warranting a response from government, which made the position clear.
“HMRC is disappointed to have lost the first-tier tribunal stage of the court process and, as stated, will seek permission to appeal the tribunal decision.The decision was not unanimous and the diligence of HMRC investigators was acknowledged by the whole tribunal. HMRC is committed to tackling avoidance and it is right that HMRC challenges the type of avoidance seen in this case to prevent the loss of substantial amounts of tax and NICs.”
Winning the big tax case is no longer about retrieving taxes for the public – it has been clear for some time that Rangers will never pay any of the 276 creditors owed money when the club went out of business. It’s about setting down case law; with a victory in this case, HMRC has a decision it can take to any other football club or business which has used EBTs and demand the money owed. A defeat for HMRC doesn’t send much of a warning message to those who avoid or, illegally, evade tax.
However, when a football club – an institution in Scotland with a huge fan base and 140 years of history – can go to the wall and HMRC makes it plain that it isn’t over yet, the message may be getting louder and clearer.
Charles Green asks a very important question. HMRC would approve.