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Employment Benefit Trust participants to face income tax bill
Employment Benefit Trust participants to face income tax bill

Following the conclusion of one of the most high-profile tax cases in Scotland, we’re now seeing HM Revenue & Customs roll out their recovery vehicle in the form of the Loan Charge legislation coming into effect in April 2019.


This stems from the long-running case of HMRC v RFC 2012 plc (the company that formerly owned Glasgow Rangers football club) where a number of players and others received payments via an Employee Benefits Trust. The purpose of these trusts, on the face of it, was to provide loans to the participants that they repaid at some future point.  However, in the course of proceedings it became clear that there was never any intention that the loans be repaid.


The arrangements meant that participants would receive a loan from the Trust. There would be no income tax paid on the money received. The beneficiaries in the Trust were the participant who had received the loan and his or her family. If the loan had not been repaid by the time the participant receiving the loan died, then the loan would become a debt of the estate thus reducing the value of the estate in the Confirmation (Probate) process. This would also reduce the amount of Inheritance Tax Payable. As the other beneficiaries in the Trust were the participant’s family, they would gain by the reduced Inheritance Tax whilst still benefitting fully from the residual value of the Trust.


Following the demise of the company behind Rangers Football Club, HM Revenue and Customs pursued their claim that payments from these types of tax avoidance schemes were illegal. The Supreme Court agreed with HMRC and found in their favour. (you can view the Press Summary of the Judgement by clicking here).


The gloves are now off. HMRC describe these schemes as “disguised renumeration schemes” and are encouraging those who have benefited from these types of trusts and who haven’t repaid the loans to come forward and declare the tax due before 5 April 2019. They are making it clear that they will pursue those who have benefited after that date but for those who come forward they are prepared to come to an arrangement regarding payment of the tax due. Those who do not come forward and are compelled to pay are likely to be faced with paying not only the tax due but also interest and penalties. You can view the HMRC dedicated pages for this subject by clicking here.

HM Revenue and Customs calculate there are 50,000 people who are affected by these arrangements and are doing what they can to encourage them to come forward and settle their tax affairs with them. Some of these are prominent former footballers who played with Rangers Football Club.