Rangers, EBTs And The Loan That Was Really Salary

If HMRC says your trust loan was really your salary, the Rangers case is the one that explains why "it was only a loan" usually fails.

You may be one of the many people who were paid through an employee benefit trust (EBT), a contractor-loan scheme, or some similar arrangement, and are now facing HMRC over it. The thing you keep coming back to is that the money came to you as a loan from a trust, not as wages—so how can it be taxed as pay? Around around 45% of people who appeal to the tax tribunal represent themselves, and this is exactly the point that trips many of them up. The Supreme Court's decision in RFC 2012 plc v Advocate General for Scotland—everyone calls it the "Rangers" case—is the reason that argument rarely works. This article explains what the court actually decided, what it did and did not settle, and where that leaves you. None of it assumes you set out to dodge tax; many people were placed into these schemes by an agency or umbrella and told they were compliant.

For the practical machinery—the loan charge, settlement, and what you can and cannot appeal—see our loan charge and disguised remuneration appeals guide. This article is about the principle underneath all of it.

What The Rangers Scheme Actually Was

Rangers Football Club, through the Murray group of companies, paid part of its players' and executives' remuneration through a trust rather than as ordinary salary. The judgment records (at paragraph 1) that the club "paid remuneration to their employees through an employees' remuneration trust in the hope that the scheme would avoid liability to income tax and Class 1 national insurance contributions ('NICs')." (National Insurance contributions are the separate charge on earnings that sits alongside income tax.)

The mechanics ran in steps. When the club wanted to reward a particular footballer or executive, the employing company paid a sum into the trustee of a "Principal Trust." It then asked the trustee to resettle that sum onto a separate sub-trust—a smaller trust sitting under the main one, earmarked for one individual and his family—and to apply the money as that individual wished. The trustee had a discretion, but in practice it did what was asked.

The employee could then take a loan from his sub-trust. The loans were structured so that interest rolled up rather than being paid, and they were not expected to be repaid during the employee's lifetime—the idea was that the balance would be settled out of his estate on death, reducing the value of the estate for inheritance tax along the way. In total, tens of millions of pounds were paid to scores of employees this way. Side-letters to the employment contracts recorded what each player was really to receive.

So the money that would otherwise have been salary went: company → Principal Trust → sub-trust → "loan" to the employee. The question for the courts was whether dressing the final step up as a loan kept it out of the income-tax and PAYE net. PAYE—Pay As You Earn—is the system under which an employer deducts income tax and National Insurance from wages before they reach the employee. HMRC said no, and issued determinations seeking the PAYE and National Insurance that it said should have been deducted.

The Long Road Through The Courts

Here is a teaching point before we get to the law, because it matters for anyone weighing up whether to fight: Rangers won twice before it lost.

The First-tier Tribunal heard the case first and, by a majority, decided for the taxpayer. HMRC appealed to the Upper Tribunal, which upheld that result—again for the taxpayer. At that stage Rangers had a clean run: the scheme had survived two rounds.

Then it unravelled. HMRC appealed to the Inner House of the Court of Session (Scotland's senior civil appeal court), which in 2015 reversed the tribunals and decided for HMRC ([2015] CSIH 77). Rangers appealed to the Supreme Court, which in July 2017 dismissed the appeal—so HMRC won again, and finally. The taxpayer's two early wins counted for nothing once the higher courts looked at the principle.

If you are deciding whether to litigate your own case, that history is worth sitting with. Winning at the First-tier Tribunal does not mean winning in the end; HMRC can and does appeal on points of law, and the onward route runs through the Upper Tribunal and beyond. Our Upper Tribunal appeal guide explains that onward path, which is the route Rangers itself travelled.

The Redirection Principle, In Plain English

The Supreme Court gave a single, unanimous judgment, delivered by Lord Hodge. Its central idea has a name—the redirection principle—and it is simpler than it sounds.

The starting point (paragraph 35) is ordinary enough: "Income tax on emoluments or earnings is, principally but not exclusively, a tax on the payment of money by an employer to an employee as a reward for his or her work as an employee." ("Emoluments" is just the older statutory word for earnings—your pay for your work.) The reward for your work is taxable. So far, so familiar.

The crucial move comes at paragraph 39. Lord Hodge could see no reason why redirecting that reward to someone else should take it out of tax: "I see nothing in the wider purpose of the legislation, which taxes remuneration from employment, which excludes from the tax charge or the PAYE regime remuneration which the employee is entitled to have paid to a third party."

He made it intuitive with an everyday illustration in the same paragraph. Suppose your contract says you will be paid a salary of £X, and that as part of your package the employer will also pay £Y to your spouse—or, in his example, to your "aunt Agatha":

"if an employee enters into a contract or contracts with an employer which provide that he will receive a salary of £X and that as part of his remuneration the employer will also pay £Y to the employee's spouse or aunt Agatha, I can ascertain no statutory purpose for taxing the former but not the latter."

You would not expect the £X to be taxed as your earnings but the £Y to escape simply because it was paid to your aunt. It is all your reward for your work; it is all your earnings. Who physically receives the money does not change that.

Paragraph 41 states the rule in its most quotable form:

"As a general rule, therefore, the charge to tax on employment income extends to money that the employee is entitled to have paid as his or her remuneration whether it is paid to the employee or a third party. The legislation does not require that the employee receive the money; a third party, including a trustee, may receive it."

Read that twice, because it is the heart of the case. You do not have to receive the money—or even have a personal right to receive it—for it to be your taxable earnings. If it was your reward for your work, and at your or your employer's direction it went somewhere else (here, into a trust), it is still taxed as your pay. The trust is just the "third party" in the rule.

Why The "Loan" Wrapper Did Not Save It

This is where the argument you keep returning to runs out of road.

The redirection happened at the moment the company paid the money into the Principal Trust. At that point the sum was the employee's redirected remuneration, and the tax charge had already bitten. As Lord Hodge put it (paragraph 50), "a charge to income tax on employment income can arise when an arrangement gives a third party part or all of the employee's remuneration."

Everything that came afterwards—the resettlement onto the sub-trust, and then the "loan" out to the employee—came too late to undo a charge that had already arisen. The label "loan" attached to a final step could not reach back and change the character of money that was earnings the day it entered the trust.

Notice what the court did not have to do. It did not need to find that the loans were a sham, or that anyone was lying about the paperwork. The loans could be perfectly real loans and it would make no difference, because the tax point turned on the earlier redirection, not on the genuineness of the loan. That is why "but it was a properly documented loan" is not, on its own, an answer to HMRC.

The PAYE Sting: Who Ends Up Holding The Bill

There is a second part of the decision that explains why the bill lands where it does.

Because the payment into the trust was a payment of the employee's earnings, the employer should have operated PAYE on it. Lord Hodge was explicit (paragraph 67): "The trustee of the Principal Trust is the person in receipt of the emoluments or earnings and payment to it should have been subject to deduction of income tax under the 1993 Regulations and now under the PAYE Regulations." In other words, the moment the club funded the trust, it should have deducted income tax (and National Insurance) as if it were paying wages—and its failure to do so left it liable for the tax it had not deducted. The same redirection principle applies to Class 1 National Insurance as it does to income tax.

In Rangers itself, that meant the employer—the club—carried the PAYE liability. For many readers, though, the scheme involved an offshore or now-defunct employer, and the practical question is how the individual ends up being chased. The short answer is the one most readers dread: yes, you can be left personally liable, even when the original employer is offshore or long since dissolved. That happens through later, separate machinery—the loan charge and the rules about PAYE credits—not through anything Rangers itself decided. We explain how an individual can be left personally liable in our loan charge and disguised remuneration appeals guide. The point to hold onto here is narrower: Rangers fixes the employer's PAYE obligation on the payment into the trust. It is the doctrinal foundation; the route by which the bill reaches you personally is a separate step.

The Limit Of The Principle: What Rangers Does Not Decide

It is just as important to be clear about what Rangers does not say. It does not say that every loan from a trust is automatically taxable as salary. It says that redirected remuneration is taxable. Those are not the same thing, and the courts have since drawn the line carefully.

The case that draws it is M R Currell Ltd. There, a company contributed £800,000 to an EBT, which then lent the money to a director under what the tribunals found was a genuine obligation to repay. The Upper Tribunal ([2024] UKUT 404 (TCC)) held that this was not a payment of earnings to the director—the money "was not placed unreservedly at his disposal," and the making of the loan was not a payment of his earnings. It distinguished Rangers on a specific footing: in Rangers it was common ground that the payment into the trust was remuneration, whereas in Currell that was the very question in dispute. The Court of Appeal agreed and dismissed HMRC's appeal ([2026] EWCA Civ 445), describing Rangers as of "relatively limited assistance" precisely because the remuneration point had not been in dispute there. In Currell, what the director actually got was the loan—not diverted pay.

Now the honest caveat, because false hope helps nobody. Currell is intensely fact-specific. It worked because there was a real, repayable loan and no diversion of the director's pay. The typical contractor or footballer scheme is the opposite: the "loans" were never genuinely meant to be repaid, and the money was the employee's reward dressed up. For those arrangements, Rangers is decisive, and the same scheme entered into today would be caught by the statutory disguised-remuneration code regardless (more on that below). The Court of Appeal in Currell stressed that it was deciding the position under the law before that code applied. So Currell is a narrow legal boundary the courts have recognised—not a playbook for beating the loan charge, and not a reason to assume the argument will work in your case. Whether it could even arguably apply to you is exactly the kind of question to put to a tax adviser who can read your documents.

Where This Leaves You

Rangers settled the principle; the rest of the landscape is built on top of it. Two pieces of legislation matter, and they do different jobs.

Part 7A of ITEPA 2003, headed "Employment income provided through third parties," was inserted by the Finance Act 2011. It is a statutory charge that catches EBTs, sub-trusts and contractor loans going forward—broadly for arrangements from 9 December 2010 onwards. Rangers decided the position for the earlier years, on first principles, without needing Part 7A. The two are complementary: Part 7A for the recent years, the Rangers principle for the historic ones.

The loan charge (in the Finance (No.2) Act 2017) is a separate, free-standing charge on loan balances that were still outstanding on 5 April 2019. It is not what Rangers decided, but Rangers is the reason the underlying "it was a loan" defence does not work—which is the argument the loan charge later codified.

Putting that together, your realistic options are usually some combination of three: settle with HMRC, deal with the loan charge as it applies, or—rarely, and only on the right facts—run a Currell-type argument that what you had was a genuine repayable loan and not redirected pay. Which of these fits depends entirely on your figures and your paperwork.

Two things shape the size of the bill. First, the historic tax does not sit still: interest runs on it from the date it was originally due—currently 7.75% a year—and after years of delay that interest can come to rival the tax itself, while penalties may be added where HMRC argues the original failure was careless or deliberate (see interest on unpaid tax and HMRC penalties explained). Second, how far back HMRC can reach depends on the route: an assessment for an old year has to be in time—broadly four years, six for carelessness, or twenty for deliberate behaviour (see discovery assessments)—whereas the loan charge attaches to loan balances outstanding on 5 April 2019 regardless of those limits.

A few signposts, kept deliberately brief:

• For the loan charge, the three different bills it can involve, the current settlement opportunity and its deadlines, and what is and is not appealable, start with our loan charge and disguised remuneration appeals guide.
• For weighing settlement against litigation, see settling your tax tribunal case.
• Where HMRC has reached old scheme years by raising assessments out of the blue, those often come as discovery assessments—an assessment HMRC can raise after the normal enquiry window has closed when it says it has newly found tax was underpaid—see discovery assessments, which have their own validity hurdles.
• For the mechanics and grounds of challenging the appealable parts, see how to appeal to the tax tribunal and understanding your HMRC appeal rights.

One deadline warning, because it is easy to get wrong. If you have an appealable HMRC decision—an assessment, a closure notice, or a penalty—you normally have 30 days from the decision to appeal it. That 30 days window applies to those appealable decisions only. It does not apply to the loan charge itself (which arises by operation of law) or to accelerated payment notices and follower notices (which carry no tribunal appeal at all, only written representations). Do not assume one clock governs everything; the loan charge guide sets out which is which.

Finally, if this is weighing on you, you do not have to face it alone. If your income is low, free and independent tax help is available from TaxAid; for older people on low incomes, Tax Help for Older People does the same. HMRC has an extra-support service if you are finding things difficult to deal with. And the loan charge has caused real distress for many people caught by it—if it is affecting how you are coping, the Samaritans are there free, day or night, on 116 123.

Key Legislation And Resources

The Judgment

• RFC 2012 plc (in liquidation) (formerly The Rangers Football Club plc) v Advocate General for Scotland [2017] UKSC 45 — the redirection principle; Lord Hodge, single unanimous judgment.
• UK Supreme Court case page — judgment PDF and press summary.

Legislation

• Section 62, ITEPA 2003 — the meaning of "earnings" (the post-2003 charge).
• Section 684, ITEPA 2003 — the PAYE regulations and deduction obligation.
• Section 19, ICTA 1988 — the Schedule E charge on "emoluments" (the pre-2003 years).
• Section 131, ICTA 1988 — the wide definition of "emoluments".
• Part 7A, ITEPA 2003 — disguised remuneration: employment income provided through third parties (inserted by the Finance Act 2011).

Key Cases

• RFC 2012 plc (Rangers) v Advocate General for Scotland [2017] UKSC 45 — redirected remuneration is taxable as the employee's earnings even when paid to a third party; the employer should have operated PAYE.
• HMRC v M R Currell Ltd [2024] UKUT 404 (TCC) — a genuine, repayable loan, with no diversion of remuneration, is not a payment of earnings; Rangers distinguished.
• M R Currell Ltd v HMRC [2026] EWCA Civ 445 — Court of Appeal dismissed HMRC's appeal; Rangers of "relatively limited assistance" where the remuneration characterisation was in dispute.

GOV.UK Guidance

• Disguised remuneration: a Supreme Court decision (Spotlight 41) — HMRC's statement of how it reads Rangers across EBT, EFRBS and contractor-loan schemes.
• Tax avoidance: disguised remuneration — HMRC's collection of loan-charge and disguised-remuneration guidance.
• Disguised remuneration: settling your tax affairs — settlement and contact routes.

On This Site

• Loan charge and disguised remuneration appeals — the practical hub: the three bills, the current settlement opportunity, and how an individual ends up liable.
• Settling your tax tribunal case — settle versus litigate, and s.54 agreements.
• Discovery assessments — the s.29 route HMRC often uses to reach old scheme years.
• How to appeal to the tax tribunal — the appeal procedure for the appealable assessments and penalties.
• Understanding your HMRC appeal rights — appeal routes overview.
• Upper Tribunal appeal — the onward route on points of law, the path Rangers itself travelled.

This article is for informational purposes only and does not constitute legal or tax advice. For advice specific to your situation, consult a qualified tax adviser, accountant, or solicitor.