HMRC Is Taking Action After The Rangers EBT Ruling: Issues Facing Trustees

Fortified by the recent Supreme Court judgment in favour of HM Revenue and Customs in RFC 2012 Plc (in liquidation) (formerly The Rangers Football Club Plc) (Appellant) v Advocate General for Scotland (Respondent) (Scotland) [2017] UKSC 45 (the Rangers Case), HMRC have already begun to issue enforcement notices to sponsoring employers for the payment of tax and National Insurance (NIC) liabilities in respect of employee benefit trusts (EBTs) on the basis that the arrangements facilitated forms of disguised remuneration to employees.

HMRC's response is not unexpected. When the judgment was issued in July, HMRC issued a strongly-worded statement, describing the ruling as having "wide ranging implications" and underlining its determination to "always challenge contrived arrangements that try to deliver tax advantage never intended by Parliament".

Where enforcement notices have been issued, sponsoring employers may seek to recover the amounts owed from the trustees or the beneficiaries of the EBT in question.

Trustees of EBTs that find themselves in this position must consider whether any such liability to income tax and NIC is rightly payable from the trust fund of the EBT, or by the sponsoring employer.

Precisely where the liability sits will depend on the provisions of individual trust instruments constituting the EBT in question - there is no common "one-size-fits-all" answer.

The issues that affected trustees should now consider are as follows.

Whether or not the tax and NIC liabilities are rightly payable from the trust fund. Commonly the liabilities will actually fall on the sponsoring employer. If a sponsoring employer claims that the liability falls to be met from the trust fund of the EBT, the trustees may wish to ask that the sponsoring employer share with them the legal advice which brought them to that conclusion. Whether the terms of the trust deed constituting the EBT in question...