Taxman loses court battle against Rangers

Former Rangers owner Sir David Murray and HMRC have been embroiled in a battle. Picture: Neil Hanna

Critics have claimed that the case and the prospect of a large tax bill deterred prospective buyers from acquiring the club when it was struggling and ultimately led to its financial downfall. The collapse of one of Scotland’s most successful and best-known football clubs caused huge shockwaves both in the game and beyond.

Fans were last night angry that the club’s future was decided before the results of an appeal by the taxman was known.

Her Majesty’s Revenue and Customs (HMRC) had argued that payments made to players and other employees should be taxable but former club owner Murray International Holdings (MIH) argued they were loans and therefore not taxable under the then tax laws.

Judge Lord Doherty yesterday dismissed an appeal against a first-tier tax tribunal decision in favour of Rangers, leaving the club with only negligible tax liabilities – against an original demand from HMRC for £46.2m.

The decision does not affect the current club, which rose from the ashes after the original Rangers FC was put into liquidation, was subsequently dismissed from the Scottish Premier League and was forced to play in the lowest tier of Scottish professional football.

But MIH, the company headed by Sir David, yesterday claimed that the tax case “overshadowed” the club and “tarnished” outsiders’ views of it as a viable acquisition.

The controlling interest in the club was bought by an investment vehicle owned by businessman Craig Whyte in 2011 for just £1. It went into administration less than a year later over non-payment of £9m in PAYE and VAT to HMRC.

However, the administrators warned that the club’s total debts could top £134m due to the potential EBT liability. The club eventually went into liquidation and the “assets, business and history” were sold to a new company.

Former chairman Mr Whyte was later discovered to have funded his takeover of Rangers with money issued to the club by ticketing agency Ticketus on the basis of future season ticket sales – following personal guarantees from him.

“The decision substantially reduces HMRC’s claim in the liquidation of the old Rangers Football Club,” MIH said.

“MIH has, at all times, recognised that the tax tribunal proceedings stemmed from arrangements put in place during its ownership. They were introduced before legislative changes removed the tax efficiency of such arrangements from the end of 2010.

“However, it is obvious that the much-publicised existence of these proceedings overshadowed Rangers Football Club for many years and tarnished the external perception of its value.

“There can be little doubt that despite favourable legal opinion, potential acquirers were therefore dissuaded from pursuing their interest during a period in which we were marketing the sale of MIH’s shareholding.”

It added: “During proceedings, it would have been entirely inappropriate for us to highlight fundamental misunderstandings or contribute to this public debate.

“Notwithstanding all of this, it is abundantly clear that Rangers Football Club would not have gone into administration or liquidation had the purchaser fulfilled its contractual obligations and responsibilities.”

Yesterday’s ruling is the end of a long legal wrangle between HMRC and oldco Rangers.

The first-tier tribunal had issued a 2-1 majority verdict which favoured, in principle, the Murray Group in November last year and ordered that HMRC’s £46.2m demands – about three-quarters of which referred to the liquidated club – be “reduced substantially”.

However, an appeal on the part of HMRC meant that the case continued to drag on. The upper-tier appeal has largely upheld that verdict but some payments will be re-examined by the original tribunal, including termination and “guaranteed bonus” payments.

The appeal found most of the trusts were “valid” and loans are “recoverable” by the trust, although it conceded some advances to players were taxable.

The Murray Group appeared to secure an additional victory relating to payments made to several people, including former Ibrox chairman Sir David, which it argued were not special cases.

The judgment reads: “The appeal is dismissed except in so far as it relates to the termination payments.” Mark Dingwall, board member of the Rangers Supporters Trust, said fans were “angry” that the club’s fate could not have been decided following the appeal – when its liabilities would have been lower and its potential as an acquisition more attractive.

“There is a great deal of anger in Scottish football,” he said. “I think poison was spewed out against Rangers and certain people in high places did turn their attention to finishing the club off as quickly as possible. We all have to live with that legacy for decades.”

He added: “Rangers, and Scottish football, has been through a traumatic time. If the football authorities had waited, then I think we would be in a different position.”

The club has had two promotions since re-admission to the league. An HMRC spokesman said: “We are disappointed with today’s decision and considering an appeal.”