Rangers’ legal battle with HMRC took a serious turn for the worse in recent weeks. The case, which concerns the club’s use of an Employee Benefits Trust (EBT) to pay players without paying PAYE or National Insurance contributions, puts Rangers FC’s future on the line. In a startling gambit, Rangers’ lawyer, Andrew Thornhill QC, has had his second approach to settle the case out of court rebuffed. In this most recent offer, it is understood that the Ibrox club offered an amount just under £10m.
But this was not Rangers’ first effort at making this problem disappear. Upon taking on the case in the spring of 2010, Thornhill approached HMRC asking what it would take to settle. When that did not elicit a response from the British government’s representatives, he threw out an offer of £3-5m. This was summarily rejected. However, at the time, this was not seen as significant: simply a lawyer doing his job to evaluate all options and test the depth of resolve of the opposition.
However, this most recent approach comes with the background of the initial phase of the First Tier Tribunal, which was held in late October 2010. Several of the witnesses called by Rangers were forced into damaging admissions and retractions under cross-examination. The entire case was scheduled to last for two weeks, but Rangers were not even able to complete their rebuttal of the charges- that they had knowingly operated an illegal tax scheme. HMRC’s lawyer is widely considered to have ‘roasted’ several senior representatives of the famous Glasgow club. With the tribunal scheduled to re-start in May 2011, the flat rejection of this offer is sure to send a wave of panic up to the top of the marble staircase and beyond.
It is understood that it would take an offer to pay HMRC 100% of the original underpayment and accrued interest- a total of £36m- to get HMRC to engage in negotiations over the amount of penalty which would be added. The final amount of the penalty, which has already been billed to Rangers (approx £24m), is scheduled to be determined in a separate tribunal if Rangers’ guilt in operating a tax evasion scheme is established in the current process. HMRC’s enthusiasm for going to court can be explained by a desire to establish case law and eliminate any doubt over the use of EBTs to pay contractual obligations such as salaries and appearance money. (Contrary to erroneous speculation in the print media, image rights form no part in the current case against Rangers).
One can only speculate whether Alistair Johnstone and the Rangers board still retain their jaunty confidence in the ‘expert advice’ they claim to have followed. Their flat dismissals of the risks surrounding this matter and their willingness to write a cheque for £10m today seem to be in conflict. One financial analyst familiar with the case said: “It looks like the seriousness of their position is dawning on the Rangers board. This looks like they have figured out the maximum amount of money they are able to pay and have decided to offer it now rather than risk almost certain insolvency should they be forced to pay even close to £60m”.