Loan Charge scandal – The Supreme Court unanimously ruled against Rangers FC with Stringent measures impose

Loan Charge scandal – The Supreme Court unanimously ruled against Rangers FC with Stringent measures impose

The Rangers FC Employee Benefit Trust tax lawsuit is around the club’s usage of EBTs to pay players and staff from 2001 to 2010. Some organizations use EBTs, a sort of trust fund, to provide loans or other legal perks to their employees. The dispute arose about whether EBT payments should be considered as taxable income or loans. The club contended that these were loans and so not subject to income tax other than benefit in kind. However, HM Revenue and Customs (HMRC) claimed that the payments constituted taxable profits.

The matter went through various tribunals before reaching the Supreme Court for a final decision. The Supreme Court ruled unanimously against Rangers FC, holding that PAYE tax deductions should have been made on the transfer of monies to the trusts rather than the loans themselves. The legal controversy in this case revolved around the distinction between loans and taxable income. According to reports, loan agreements associated with payments made to footballers and other staff members via EBTs outlined the terms and conditions of the loans, including repayment terms, interest rates, and other customary elements found in traditional loan agreements.

This ruling had far-reaching consequences for Rangers FC, HMRC, and taxpayers, setting a precedent for similar cases.

HMRC’s inconvenient win

The Rangers Supreme Court case win put HMRC in an unpleasant position because it revealed that the loans themselves are not taxable, and PAYE should have been applied to the monies deposited into the trust, which the registered PAYE employer is legally responsible for maintaining and paying tax and NI. In particular, the PAYE regulations state that people are normally entitled to a credit for any PAYE that their employer should have deducted but did not.

HMRC had failed to take prompt efforts to obtain this tax from the payer (employer) by focusing on employee loans rather than employers, and with the PAYE credit, inquiries into employee tax returns would have little impact. HMRC acknowledged that it could no longer use the traditional PAYE techniques to transmit liabilities to employees. Thus, the HMRC victory in the Rangers FC case was a ‘inconvenient win’ since the cost of winning the battle was so great that the victory was ultimately useless.

To get around taxpayer protections, a retrospective loan charge was implemented. This would consider the amount of any loan that was due on April 5, 2019, and regard it as additional taxable income for the 2018-19 tax year. Following Sir Amyas’ analysis, the charge applies to all outstanding loans advanced since December 9, 2010. Before this date, the tax position was unclear. For many who have been involved in these arrangements for numerous years, the loan charge aggregate sums received in different tax years become unpayable, resulting in higher marginal tax rates and the loss of personal allowances.

Why is the Loan Charge wrong?

Some have voiced the view that because this particular set of people engaged in tax evasion, they are not entitled to pity, and if the regulations change, even retroactively, so be it. our attitude demonstrates a disregard for how our country has long upheld the rule of law, human rights, and legislative time constraints.

The majority of this group of persons were not attempting to avoid paying taxes and were doing their best to comply with their tax duties, such as IR35 requirements, and were, at worst, ignorant. There are hundreds of impact statements from affected individuals, all of whom declare unequivocally that they were participating in what they considered to be HMRC-approved arrangements, and for some who have had zombie open inquiry for years, HMRC has yet to express dissatisfaction with the tax arrangements. Its silence merely strengthened the belief that everything was in order.

Serious worries

Professional organizations expressed major concerns when the law was first announced during the consultation stage. The Institute of Chartered Accountants in England and Wales (ICAEW) responded by stating that it was:

“Very concerned about the proposals in the consultation document as they contravene generally accepted notions of fairness and break the constitutional convention against retrospective legislation, imposing tax charges in cases where taxpayers already had legal certainty that none were due.” Two paragraphs later, its statement criticized the guidelines for being “aggressively retroactive” and “open to challenges under the Human Rights Act.”

The Chartered Institute of Taxation (CIOT) responded by emphasising the importance of taxpayer rights:

“The rights of taxpayers to have certainty and clarity in respect of the taxation of employment income” as well as the fact that the proposed legislation “effectively imposes a retrospective tax charge on events that happened in the past.”

As HMRC stated at the end of the consultation session in 2016, “The vast majority of respondents, over 90%, disagreed with the fundamental policy objective of the measures to tackle [these loan arrangements].”

However, with a sleight of hand, HMRC dismissed these complaints, noting “Mostly from individuals who had used a disguised remuneration scheme and were concerned about their ability to meet their liabilities arising from these changes”.

The HMRC answer paper gave the incorrect impression that the professional bodies “broadly supported the aims of the consultation.”

Taxpayers have statutory rights.

Many tax experts find it particularly disturbing that HMRC has stated that the loan charge was designed in part to discourage taxpayers from exercising their statutory rights of appeal and from taking advantage of the protections provided by the enquiry and discovery rules. It must be noted, however, that these intimidating words were not made public while the legislation was being enacted.

If HMRC can dupe parliament into passing legislation that merely ‘drives a coach and horses’ through these valuable rights for one part of society, who knows who will be next?

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