Background to the Rangers tax avoidance scheme
At the point of contract negotiation, employees were advised that rather than going through the PAYE scheme, they would be advanced loans. This would be dealt with by way of contributions paid into an employee remuneration trust. Each employee would be given control of a sub-trust and request payment from the Rangers trust. Once funds were paid into the sub-trust, as protector of the sub-trust, the employee could then direct the funds to beneficiaries of their choosing. The giveaway that the scheme was not exactly above board should have been Rangers giving an indemnity to all employees for any personal tax liabilities arising from the scheme.
With Rangers in liquidation, the indemnity is now, effectively, worthless. Many of the former employees have been given until 31 May 2018 to open settlement negotiations with HM Revenue & Customs for the income tax on the funds they have received. This is estimated to be a total liability of around £24 million. The largest individual bill is estimated at £3 million. It is anticipated that many of these employees will face bankruptcy or sequestration. However, HM Revenue & Customs have stressed they would prefer to do a deal, rather than the employees enter formal insolvency.
The scope of the tax avoidance scheme is much wider than just Rangers Football Club and its employees. Over the next month, HM Revenue & Customs are due to issue around 6,000 follower notices with connected accelerated payment notices. A follower notice can be issued where a final judicial ruling has been given. That ruling can be applied to the tax arrangements of other businesses. The notice must be issued within 1 year of the final ruling, hence the key date of 4 July 2018.
If you receive a follower notice, you will be required to correct your tax returns by the deadline specified on the notice. The accompanying accelerated payment notice will estimate the amount which would be due, if your returns are corrected, and require the funds to be deposited with HM Revenue & Customs by a specified date. You will have 90 days to make the payment and file the updated returns.
If you fail to comply with the follower notice deadline, a further penalty for 50% of the accelerated payment notice will be issued. This will also apply if you unsuccessfully appeal against the follower notice. Therefore, serious consideration should be given and legal advice taken before launching such an appeal. If you cooperate after the follower notice deadline, the penalty may be reduced. However, you will still be required to pay a minimum of 10% of the value of the tax due in penalties. There are no provisions for the response deadline to be extended. All focus should be dedicated to compliance with the notice rather than seeking extensions.
What if I can’t pay the tax due?
Of the 6,000 follower notices being issued by HM Revenue & Customs, they have advised that it is expected that 50% of these businesses will be insolvent on a balance sheet basis. If you are unable to pay the tax that is due, you will not be alone. The main advice that we can give is to engage with HM Revenue & Customs. They do not want a spike in company liquidations and personal insolvencies due to these follower notices. This being said, if you do not engage with HM Revenue & Customs, it is almost certain that a winding up petition will be issued against your company.
As the follower notice only requires you to correct your tax returns, if you have no valid dispute for the notice, you should do this in all cases to avoid increased liabilities. This is whether you are able to pay or not. HM Revenue & Customs will give due consideration to any deals which involve them recovering the largest amount of tax possible. That is if they are unlikely to recover the full balance. In order to achieve this, they may expect you to:
- Make regular payments from income over a period of time.
- Sell items of property to pay the tax.
- Introduce third party contributions either from directors personal funds or other third parties.
If HM Revenue & Customs are the only issue threatening your business, they may consider a time to pay agreement. This agreement is granted on the basis that all of the tax is paid within 1 year or less. If you have other creditors or are unable to make a repayment deal, you may need to consider more formal options to resolve your financial difficulties.
What formal options do I have
Depending on whether your financial problems relate to you as a sole trader, or a limited company, the following options may apply to your business. They may help avoid bankruptcy or a winding up petition:
- Creditors Voluntary Liquidation
- Company Voluntary Arrangement
- Individual Voluntary Arrangement
- Obtaining funding to make a settlement
Again, the main thing to do if you have difficulties in paying the accelerated payment notice is to act quickly. Our business rescue experts can open a dialogue with the HM Revenue & Customs tax avoidance team to discuss the solutions for the business and take them forward.