A Taxing Matter – Glasgow Rangers, Part 1.

I have decided to write down in hard format the Rangers Tax troubles that have plagued the club for approximately the last three years or so. I am a Rangers fan, I have an interest in the case both in the perspective of the law and also some may argue a vested interest due to not only my support of the club but my continuing purchase of their produce in an up front, annual manner.

My reason for doing this is simple: to help myself understand the complexities of Rangers football club at present and the revered “tax Case” itself. If along the way I help to clarify a matter for someone else then fine, I do not guarantee that 100% of the information that I write will be accurate – I will relay on opinion, fact, hearsay and any other viable authority that I can come across.

I will not predict anything as such, merely voice whatever is out there in the public domain and give my opinion and concern on the matter.

First of all, I will begin with what I regard to be an overview of the current financial problems facing Rangers. Along the way I will no doubt enter tangible sub-stories such as the resignation of John Greig and Martin Bain’s pending case, not to mention others.

Let’s get something straight first of all. Rangers Football Club is a company of its own legal entity. When rumour of this tax case first reared its ugly head among the tabloid media and internet forums it was presumed by many that David Murray’s Company would be liable for the tax bill. Without spending much time on this subject let’s gloss over it with the simple fact that this is complete and utter rubbish and could never have been the case. Glasgow Rangers Football club is a legal entity in its own right, it’s has its own legal personality to enter into contracts and financial agreements in its own name.

So, what is this tax case all about then?

This particular case in question, from what I can gather, reverts back to the financial year of 2000 to 2001. You guessed it, around the same time as Rangers were financing deals for the supremely talented players playing under the Dick Advocaat Era as it shall be fabled.( this is the origins of the matter, it has continued from this period).  During this time Rangers entered into a tax plan with a company named ‘Baxendale Walker’. The company have offices in both London and Glasgow at Buckingham Palace Road and Claremont Terrace respectively. The company is a Limited Liability Partnership (LLP) setup in 1994 by none other than Paul Baxendale Walker  whom is; interestingly enough, featured on BBC Money Programme – “No tax please, we’re rich!

The firm like to outline their core beliefs on their own personal website outlined as:

• the liberty of the individual underwritten by the rule of law
• the primacy of commercial freedom
• the enhancement and protection of wealth
• achieving justice under the law
• the protection of private rights
• the enforcement of state obligations

The company also outline the following, something that would now appear a statement of developing irony:

At the core of our Firm is the power of strategic planning. Unlike many advisors, we are not crisis-driven. All too often, by the time a problem arises, it is already too late to achieve the optimum solution. Using our research, we identify potential problems for clients and prospective clients. We implement strategies which provide our clients with a dual advantage:

• maximising wealth by the use of current opportunities
• minimising the potential effect of future risks

We work closely with departments of state and other institutions in a continuing dialogue devoted to ensuring congruence in compliance with the rule of law by them and by our clients. We also work as part of our clients’ teams of professional advisors, deploying our expertise within a collaborative framework.

There is a wealth of information on the man behind the company that is not difficult to find with a simple Google search. I will not go into detail but his record on legal matters is dubious and he has found himself on more than once occasion on the wrong side of the law as well as having been struck off the register of the Law Society. Most of it is uneasy reading to be brutally honest – and not something that would particularly fill any Rangers fan with confidence on the company he is charged with being in partnership for. He also has an interest in Pornography, but that is irrelevant for current matters involving Rangers.

What would be of concern to me is simple; Paul Baxendale Walker has on more than one occasion been discredited as having cited cases with absolutely no foundation in the Courts. (See Justice Supperstone).

He is also an author and has written booked alongside Rangers Football Clubs current QC Andrew Thronhill named, The Law and Taxation of Remuneration Trusts (Key Haven, 1997) and also Purpose Trusts (1999, 2009 [2nd ed.])

This does not particularly mean anything as such, but Rangers new owner Craig Whyte has insisted that he has assurances from top legal advice that Rangers can and will win their impending tax case. My concern is that the advice he has been seeking is from this very source, and that does not sit easy with me in respect to being ‘sound advice’.

However, back to the case in hand:

Rangers entered into a system known legally as,”Employee Benefits Trust” (EBT). This is a perfectly legal thing to do and is outlined in the link here: EBT

The idea of an EBT was effectively outlawed in 2010 and this is outlined- I am sure- in the proposed Finance Bill 2011.

An employee benefit trust would often takes the form of a pension or profit-sharing plan set up by an employer to ensure that its employees have an adequate income stream during retirement. Such plans are usually managed by banks or third-party EBT firms, which act as a company’s trustee, and pay out money from the funds in accordance with the regulations, set by the company. Additionally, some EBTs also offer preretirement benefits such as health care insurance and employee loans. This is the avenue that interests Rangers.

This is a general overview of the scheme so how does this effect rangers as such? Well, when cash was deposited into the EBT it would no longer be the employers. Basically, a company could deposit the cash from its profits into the trust and then in turn use the cash as a loan as such to the employee that would never be repaid as such in reality. Only very small amounts would be paid in interest on the loan as opposed to the large sums that would be paid in tax and national insurance if the sum of money was paid through a national insurance/PAYE structure. It was a clear loophole that was being exploited in business up and down the country for a long time. It might appear simple and almost a case of money laundering as such but the point is that proving the purpose was to defraud the tax office (HMRC) was extremely difficult to do as the transaction could also come across simply as a ‘loan’ as stated.

I have brushed over a few technicalities here to try and put this in simple straight forward terms as much as for my own understanding as that of anyone else that cares to glance over this piece.

For further reading on the matter of EBT and ‘loans’ read the Macdonald (HMIT) v Dextra Accessories Ltd & others

Right, so – we have established that this is a legal and wide-spread way of doing things; so why are Rangers seemingly in trouble for doing such?

Well, as always – it isn’t quite this straight forward.

The case that is outlines above, without having to read it as such also outlines certain exceptions to the case of EBT’s legality. The main exception that is outlined if you care to search for the case on the internet is that the payments made could not have any link to contractual obligations – for Rangers these could include salary, win bonuses and the like. EBT’s were a brilliant loophole but only for those who wished to take sums of cash from a company where the sums of cash involved were never written down anywhere. What do I mean by this? Well basically if you are a company Director for instance and have total control over this matter then you can trust yourself or your fellow directors to exploit this loophole on the basis of a ‘gentleman’s agreement’ for want of a better phrase.

We are not dealing with that situation at Rangers, basically. We are dealing with players that will not just take a ‘gentleman’s agreement’ when it comes to their remuneration from their employer. The fact football players are also advised by agents means that no agent of any ability would allow his player to enter into such an agreement where the outcome was not legally secure.

I must say at this point that what I am suggesting here is speculation on my behalf; it is not complete fact although it is an idea that is accepted by many. I am only a fan, and everything I say here is for my own records and not that of fact against Rangers Football Club.

I do not believe for a minute that Players signed agreements on a ‘handshake’. I would guess that for this case to come to light somewhere along the line Rangers Football Club must have been issuing written guarantees regarding EBT’s and contractual terms. It would be Idiotic for Rangers to provide a written contract that guaranteed or implied that the’ loans’ would never need to be repaid by the employees/players – it would appear as an admission of wrongdoing and would contravene the original plan purchased from ‘Baxendale Walker’.

Rangers own financial records show that these funds amount to a total of payments at the sum of £47/48 million pounds between 2000-2010. These records are available online.

Without going into detail the question that arises from these records is not how much was paid in to such trusts as to whether the sums of cash would be regarded as pre or post tax earnings to HMRC. What is the difference? Well, again without boring with financial details let’s just say that if worked out on a PAYE calculator as such including N.I. contributions Pre Tax would amount to £25 Million approx. Post Tax it would be nearer the £45 Million mark. (There figures are not inclusive or completely accurate they are ballpark figures based on my rough calculations accurate to within 2/3 million pounds). If Rangers were to lose the pending case they could be liable for up to 100% of this sum, meaning a debt of something in the region of £25million or £45 million to HMRC depending on how the sums of cash were judged in relation to pre/post tax earnings.

Part 2 To Follow……

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Tags: BBC, Employee benefit, Glasgow, John Greig, Limited Liability Partnership, Martin Bain, Paul Baxendale Walker, Purpose trust, Rangers, Rangers FC, Rangers Football Club

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