RFC 2012 plc v Advocate General for Scotland
Remuneration paid to employees through an employee benefit trust, under which the money was lent to them, was taxable earnings, because income from employment is taxable even if it is paid to a third party.
Facts
Rangers Football Club, through its parent company, operated a scheme under which footballers and other employees were remunerated by payments to an employee benefit trust, which then set up subtrusts for each employee, and lent the money to the employee, normally without expectation of repayment. The aim was to avoid income tax and national insurance contributions, on the basis that the loans were not earnings. The scheme was used to pay large sums over several years. HMRC assessed the club for income tax and national insurance on the payments.
Legal principle
The Supreme Court held that the payments were taxable as earnings. Lord Hodge said that the legislation on income tax on earnings from employment applies to remuneration for the employee's work, and that the charge is not confined to cases where the employee himself receives the money. The question was whether the payment was remuneration for the employee's work, and if so, it did not matter that the employee had agreed that it should be paid to a third party, such as the trustee of a trust. The payments to the trust were remuneration for the services of the employees, so the employer was required to deduct tax under the PAYE system. The decision affected many similar schemes.
Related cases on income and corporation tax: employment, trading and residence
- Edwards v Bairstow [1956] AC 14
- Hochstrasser v Mayes [1960] AC 376
- Jones v Garnett [2007] UKHL 35
- Mallalieu v Drummond [1983] 2 AC 861
- Marks & Spencer plc v Halsey (2005) Case C-446/03
- Pepper v Hart [1993] AC 593
- R (Gaines-Cooper) v Revenue and Customs Commissioners [2011] UKSC 47
- Shilton v Wilmshurst [1991] 1 AC 684
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