The legality of employment benefit trusts: A review of the Rangers FC / Murray Group case

Over the last twenty years, the use of employment benefit trusts (or EBTs – explained below) has increased in popularity. Whilst EBTs can be implemented for any number of legitimate reasons, they have also been exploited as a means to extract cash from companies without the usual income tax charges¹. As a result, HMRC takes issue with this type of planning² and seeks to challenge it wherever possible.

Remuneration planning using EBTs is also the reason why, in 2010, the Government announced³ a new piece of legislation, known as the Disguised Remuneration Rules (DR Rules)⁴. These rules are designed to stop this type of planning in its tracks. Of course, this did not resolve the problem of those schemes that were already in place, some of which are still being litigated. Indeed, one of the most high profile cases concerns Rangers Football Club⁵, and its development has been keenly watched by both advisers and their clients.

This article reviews the Rangers case, the issues it raises and what impact it might have. Specifically it looks at:

• A brief overview of EBTs 
  
  
• Facts of the Rangers case 
  
  
• Interaction of EBTs with the DR Rules
  
  
• What happens next? 

A brief overview of EBTs

An EBT is quite simply a trust established for the benefit of a particular group of employees, typically all the employees of a particular employer. EBTs are established on a discretionary basis so any benefits provided are determined at the discretion of the appointed trustee or trustees.

EBTs are often established as a means to facilitate employee ownership. Typically, an employee share scheme is established to sit alongside the EBT, but the EBT itself could also be established as a vehicle to hold the majority of the shares for the benefit of the employees. The John Lewis Partnership is a great example of employee ownership via trusts in practice⁶. 

Philanthropic employers might also establish EBTs with the aim of providing long term benefits from its employees. For example, trusts funds might be used to cover school fees for dependants or to make grants in times of particular need.

Facts of the Rangers Case