Rangers case should be a warning to contractors and small businesses
You’d have to be a hermit to have avoided the news about Rangers Football Club going into administration this week. It’s been all over the news, with wall to wall coverage on social media channels and the printed media.
Putting aside the emotion that football generates, and I’m writing this as a St Johnstone supporter, what are the lessons that can be learned from this debacle?
First of all, for the contractor community, there’s a very direct link. For several years now we’ve seen some accountancy providers pushing offshore EBT schemes, “guaranteeing” that they will enable contractors to take home upwards of 80% of their income. This is substantially more than would be taken home even using the most tax efficient, legal, structures in the UK. Understandably perhaps, a number of contractors have gone down this route.
However, HMRC have challenged Rangers’ use of offshore EBT’s to pay players & staff, believing this to constitute tax aviodance. HMRC have gone back over a decade and levied a claim of some £49m. By the time penalties are added Rangers are looking at a claim of around £75m, and that’s before legal costs!
For an oil & gas contractor earning the industry average day rate of £540, and operating under an EBT, an HMRC claim for tax avoidance, over a ten year period, would amount to almost £150,000. Add penalties at the same rate as Rangers and you’d be looking at £225,000.
You wouldn’t be insured for this, so you’d have to foot the legal bills yourself. Lose the case and you’ll end up on the tax payers Blacklist. So as well as losing your home and most, if not all of your assets, you’d never get credit again, assuming you can work your way out of this hole.
Worth the risk?
The other interesting angle in Rangers’ demise is that the reason they went into administration this week wasn’t the EBT case, although it would have led them there anyway (it’s going through the Tax Tribunal at the moment), it was due to some £9m of unpaid taxes since new owner Craig Whyte took over last May. The £9m is made up of VAT, PAYE tax & National Insurance Rangers have deducted from their staff but not paid over to HMRC.
I’ve seen a few SME businesses go down this route over the years, and in these recessionary times when bank funding is difficult to get your hands on, I would expect more to follow. But as HMRC have shown here, it won’t be tolerated and you’ll be in court facing a winding up order before you can say Super Ally!
Our advice is that as soon as you think you may have cash flow problems, speak to your accountant. We’re trained in how to deal with these situations and can guide you through the maze. It was no surprise to hear that Rangers had been working with Administrators Duff & Phelps for several months as they trying to work their way out of the mess.
So, plenty lessons for all to take on board. I’m just hoping that with their ten point deduction we can overhaul them and get the mighty Perth St Johnstone into the Champions League next year!
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