The Supreme Court has today finished hearing arguments in the ongoing litigation concerning employee benefit trusts (‘EBTs’) established by companies connected with Glasgow Rangers Football Club.
As we reported in 2015, the Court of Session (‘CoS’) found in favour of HMRC at the last hearing.
As before, counsel for HMRC advanced two main arguments:
- If the employees had arranged for their salaries to be paid to someone else (say, their husband, wife or Aunt Agatha) that wouldn’t have changed the nature of the payment, it would still have been taxable employment income, subject to PAYE and NIC when the payment was made – the payment to the EBT was no different;
- The terms of the trust gave the employees immediate access to the assets of the EBT, which meant that we should look through the trust arrangement and tax the employees as if they’d received cash.
Along the way, counsel for HMRC effectively implied that salary sacrifice arrangements of any kind are not effective for tax purposes and that both HMRC’s guidance on salary sacrifice and the rationale for the changes to the taxation of salary sacrifice announced in the Budget are misconceived.
Counsel for Rangers countered these arguments by pointing out that the findings of fact in the first tier tribunal contradicted key elements of HMRC’s argument and that, as a matter of law, the Benefits Code tells us how benefits in kind should be taxed; the argument advanced on behalf of HMRC would result in any benefit in kind being treated as if it was salary instead.
No judgments were handed down today, we should expect these in late April or May.
It is, as always, very difficult to make an assessment of the mood of the court, but the impression given is that the court was unwilling to entertain HMRC’s argument that the employee had immediate access to the EBT assets and was less than wholly convinced that their arguments on diverted earnings were correct.
For further information please contact the TaxDesk on 0845 4900 509 and ask for Thomas Dalby.