Update: an appeal has been lodged with the Supreme Court.

Three judges have decided in favour of HMRC in their long-running battle with the Murray group and the former Rangers football club over its Employee Benefit Trusts (EBT). Payments made to executives, players and their families via the EBT were deemed remuneration and not loans.

Murray Group executives and football players were all 'paid' via loans from the club's EBT for nearly ten years from 2002 in a scheme designed to avoid PAYE and NICs.

Players were contracted by the club for comparatively low salaries but under the terms of a 'side letter', the club paid cash bonuses into its EBT which in turn appointed the cash into various sub trusts for the players and their family. Players contracts had to be registered with the Scottish Football Association, however the side letter was not disclosed.

Arrangements for payments to the chief executive Sir David Murray and others were more informal. Funds were just paid to the EBT which in turn appointed them to sub trusts for the players' families.

The club argued that all the sums paid were genuine loans.

The case went to the First Tier Tribunal (FTT) in 2012. It decided that despite the existence of the side letter there was a genuine discretion in making the loans and found in favour of the club although one of its three members dissented.

In 2014 the Upper Tribunal (UT) refused HMRC leave to appeal, however they were later granted leave to appeal to the Inner Court of Session (CS) on one final point of law. As the case had been heard in Scotland, the Advocate General for Scotland, acted on behalf of HMRC.

HMRC argued that the cash payment made by the employer to EBT was in consideration of earned services by the employee. The scheme amounted to “a mere redirection of earnings which did not remove the liability of employees to income tax”.

The court agreed with HMRC, finding that the FTT and UT both erred in law.

While the FTT had focused in 'large measure' on the trust arrangements, the CS considered the source of the funds involved and the reason that they were provided in the first place. It considered that the bonus terms in the side letter was negotiated as part of a player's remuneration package, observing that the 'fundamental principle' that emerged from previous cases was clear: 'if income is derived from an employee’s services qua (in their capacity as) employee, it is an emolument or earnings, and is thus assessable to income tax, even if the employee requests or agrees that it be redirected to a third party'. 

Delivering the opinion of the court, Lord Drummond Young said: 'That accords with common sense. If the law were otherwise, an employee could readily avoid tax by redirecting income to members of his family to meet outgoings that he would normally pay: for example to a trust for his wife...or to trustees to pay for his children’s education or the outgoings on the family home…The funds are ultimately derived as consideration for the employee’s services, and on that basis they are properly to be considered emoluments or earnings.'

In relation to employees other than footballers, the 'true nature' of the individual transactions was that bonuses were paid into the trusts on the basis of the work performance of the employee in question, and the profitability of his employing company. 

'On the foregoing basis, we are of the opinion that the sums received by the trustee of the Principal Trust and in due course by the trustees of the sub-trusts amounted to a mere redirection of income and thus constituted emoluments or earnings of the employees in question,' Lord Drummond Young said.


HMRC have long argued that EBT loans were not real loans and that as payments which formed part of the employment package of the players they were taxable as earnings. It took some time to take action against the companies. At one stage Murray International Holdings, which had been a major shareholder in Rangers, had threatened both HMRC and the Tribunals Service over concerns that sensitive details about the EBT case had been released into the public domain.

HMRC put Rangers into liquidation when it was revealed that the club had clocked up some £21 million in unpaid PAYE and in addition potentially owed a further £75 million if HMRC were successful in their battle over the EBT. The current Rangers FC is not party to this case.

Rangers' EBT was devised by Murray in 2000. By 2010 the club had transferred almost £50 million into the EBT. The EBT was administered by trustees and had over 100 sub-trusts. The plan was that the sums would never be repaid. What has turned heads in this case is that some players were given side letters which confirmed contractual entitlement to payments from the EBT. The moment that payment becomes contractual it is difficult to argue that it is not actually earnings.

Rangers also had a discounted share options scheme. Although smaller in scale than the EBT, it is estimated that the tax bill for this is in the region of £4 million. Funds were transferred into offshore companies, and share options were granted to players in those companies. After exercising their options the players ended up as the owners of cash rich offshore companies.


(1) MURRAY GROUP HOLDINGS LTD; (2) MURRAY GROUP MANAGEMENT LTD; (3) THE PREMIER PROPERTY GROUP LTD; (4) GM MINING LTD; and (5) RFC 2012 PLC (in liquidation) (formerly The Rangers Football Club PLC) 

What now?

It seems fairly obvious that HMRC will use this decision as a basis for serving an Accelerated Payment Notice on any company that has yet to settle its EBT. If you would like assistance, please contact our Virtual Tax Partner service.