DEFEAT for Rangers FC in its tax dispute with HM Revenue & Customs spells the end for Employee Benefits Trusts and Employer-Financed Retirement Benefits Schemes (EFRBS), according to advisers.

The Court of Session in Edinburgh held the corporate entity which formerly housed Rangers, now in liquidation (oldco), had used the scheme between 2001 and 2010 to pay £47.65m to players and staff in tax-free loans.

The arrangement was challenged in the first-tier tribunal by HMRC, which said it was illegal. Rangers disputed the bill and the tribunal held the payments were loans that can be repaid and, as such, were not taxable.

This latest ruling by three judges at the Court of Session upholds HMRC’s position and renders the EBT arrangement illegal, and according to Martin Taylor, head of client relations at Rebus Investment Solutions, with wide-ranging implications.

An EFRBS is an unapproved pension scheme which means that it does not share quite the same tax advantages of a conventional occupational pension scheme.

“This is astonishing. Unless it is overturned in the Supreme Court, it essentially blows out all EBTs and EFRBS,” Taylor told Accountancy Age. “In simple terms, the court now says that the technical arguments approved by the commissioners and the tribunal in those cases should have been dismissed by an overriding ‘substance over form’ argument. Most firms selling EBT and EFRB structures used very detailed and well-reasoned counsel’s opinions.”

Taylor also warned he now expects HMRC will try to close a raft of enquiries on the basis of the decision.