The recent high profile move into administration by Rangers FC has brought an outcry from fans and commentators alike, as the club’s very existence is threatened by Her Majesty’s Revenue and Customs (HMRC). Is it right that the players be taxed in the same way employees usually would be? HMRC certainly believes so.
The general rule on employment income is that it should be subject to national insurance contributions and income tax. The dispute between Rangers FC and HMRC came about due to the structure of the players’ remuneration, whereby payments were made to ‘employment benefit trusts’ with no national insurance contributions being made.
HMRC argues that these payments were written into the players’ contracts and were therefore not discretionary, as argued by the club. If this structure is found to fall foul of disguised remuneration rules, and tax and national insurance contributions should have been made, Rangers FC would concede a substantial own goal and face a potential tax bill reportedly between £43-49m.
It is worth noting that Rangers FC is not the only organisation to structure payments in this way. Indeed there is rumoured to be another 280 cases awaiting the outcome of this verdict, involving bankers, hedge fund managers and other high earners.
Further evidence of the gutsy new approach by the Revenue can be seen in the recent dispute over payments made by premier league clubs to football players by way of image rights, and whether such payments should have been made net of national insurance contributions and income tax. Chelsea is one of 16 premier league clubs that have now settled with HMRC in relation to these payments, coughing up retrospective contributions and tax to the tune of £6.4m.
The score is therefore 1-0 to HMRC, with a chance that the Rangers investigation may make this 2-0.