EBTs – HMRC loses Rangers (Murray) appeal

The Upper Tier Tribunal has upheld the decision of the majority in the First Tier Tribunal case of Murray Group Holdings and others (including the former Rangers Football Club). The case concerned whether PAYE and NIC should have been applied to payments into sub-trusts created by an EBT, and when loans were made available from the sub-trusts to the individual employees concerned.

The central issue of the case was whether the employees in question had received more than loans; in particular whether they were absolutely entitled to the monies.

The arrangements pre-dated FA 2011, which introduced the ‘disguised remuneration’ provisions in ITEPA 2003 Part 7A (s 554A to s 554Z21) to counter the use of EBTs in this way.  

Case law

The FTT had followed the principles established in the line of cases from Ramsay onwards, and found that the loans the employees received from the EBTs were loans on a purposive, commercial and realistic approach. “The employees could not, without the intervention of and cooperation of beneficiaries (sic this seems to be a mistake and should read “trustees”), obtain absolute entitlement to the monies”.

HMRC criticised the FTT’s majority decision on the basis that the FTT did not look at the overall effect of the arrangements (i.e. the ‘composite transaction’). However, the UTT dismissed this on the basis that the FTT had taken a realistic view of the facts and having done that, found that the employees received loans, not earnings. Neither did the arrangements amount to paying the employees in a form such that the monies were at the unreserved disposal of the employees. Whilst the FTT had accepted there was a degree of ‘orchestration’ between employer and employee, this did not result in the employee having the power to obtain anything greater than a loan.

The UTT decided the reason Aberdeen Asset Management was decided in favour of HMRC was that the money in that case was at the unreserved disposal of the employee. In contrast, in this case, whilst the funds in the sub-trusts could be borrowed (and in almost all cases were borrowed), the funds were not at the unreserved disposal of the employees. Hence, as the payments to the individuals here were loans, no more and no less, and the loans were repayable and might have been called in, there cannot have been an unreserved disposal of the cash to the individuals.

The overall arrangements

HMRC attempted to convince the UTT that the reality of the arrangement was to pay earnings. The UTT observed that this argument was not considered in the FTT decision. The UTT concluded there “does not appear to have been a present entitlement to earnings” when the company paid money into the EBTs or when loans were made nor did the employees have a choice as to taking remuneration (in a non-contractual way, e.g. as a bonus) or loan. Therefore this argument failed. 

Neither did the UTT accept that the trustees merely acted as ciphers and failed to exercise any independent discretion over the payments. It was apparent the trustees were aware of the duties owed to the beneficiaries and that they could be answerable for any breach of those duties.

It may be some time before we find out if HMRC will appeal this decision, but likelihood must be that they will.