Part 1: The Wee Tax Case Timeline: What Story Does It Tell?

 

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Preface. The following is important to understanding the nature of HMRC activity with regard to the wee tax case. Unlike annual tax returns where the tax payer completes an assessment for the last tax year which is submitted to HMRC and a bill or refund is issued, this case was conducted under Regulation 80 Determinations for PAYE and Section 8 Decisions are collection enforcement proceedings where a bill/liability already exists but has gone unpaid. In this case dating back to 2000/2001 tax year and thereafter.

HMRC’s internal  manual states:

“Tax determined under Regulation 80 is a formal means of recovering unpaid PAYE tax. It gives HMRC power to determine the tax that is due from an employer but remains unpaid.” 

Thus in overdue terms payment was way overdue for a number of years. What follows is a Timeline relating to the Wee Tax Case from 26 November 2010 up to the Compliance Officer issuing Non Compliance charges in May 2018.

The start date of 26 November 2010 can be viewed as the commencement of HMRC proceedings against RFC, which directly affect the validity of the award of a UEFA Licence to RFC for Season 2011/12.

HMRC initially issued RFC with Regulation 80 and Section 8 Decisions in respect of Moore, Flo and De Boer on 28 September 2007.  RFC appealed the assessments four weeks later, on 26 October 2007. In December 2007, the RFC appeal was put on hold, along with a number of other similar appeals, pending an appeal to a First Tier Tribunal by Aberdeen Asset Management (AAM) who operated a similar DOS scheme.  Indeed, the AAM and RFC DOS schemes shared the same trustees.

The AAM appeal was not heard until June 2010, with the tribunal ruling in favour of HMRC in their decision published on 29 October 2010, rendering the DOS arrangements unlawful as a tax avoidance scheme. With the precedent established, HMRC then proceeded to contact each of the companies, including RFC, whose appeals were on hold. HMRC’s letter to RFC was dated 26 November 2010.

Note that while RFC was legally responsible for PAYE and NIC payments in respect of their employees, much of their tax affairs at that time were managed by their parent company, Murray International Holdings (MIH).

 

Timeline

Part 1 – 26 Nov 2010 to 4 May 2011

 

A False Pretence?

  1. 26 November 2010 HMRC write to MIH (acting on behalf of RFC) with an offer to settle tax due from 2000 to 2003 in respect of remuneration payments made by Rangers Football Club to Ronald De Boer and Tor Andre Flo, based on the outcome of The Aberdeen Asset Management FTT. The settlement figure was disclosed at the criminal trial of Craig Whyte as £2,238,559.91. A response was requested by 31 December 2010.
Source: Letter of 23 Feb 2011 para 2 of Ref2  The letter of 26 November 2010 is not available to us but its contents were discussed at the Craig Whyte trial and can be read at Ref 2a

 

  1. 10 January 2011 HMRC write to MIH after reviewing all the case documentation and the side-letters in particular. HMRC advise that the computation of the liability would change because the payments would have to be grossed-up, as the players were purportedly paid “net”, as per the side letters.
Source: Letter of 23 Feb 2011 para 1 of Ref2  and the witness statement by an HM Inspector of Taxes, to an action at the High Court of Justice in London, dated 21 March 2012, at para 16 of Ref4b.

 

  1. 10 February 2011 HMRC met with MIH and RFC representatives and presented them with the side-letters and correspondence from MIH denying their existence. The MIH and Club representatives requested more time to seek legal advice on their options going forward.
Source: Witness statement by an HM Inspector of Taxes, to an action at the High Court of Justice in London, dated 21 March 2012, at para 17 of Ref4b.

 

  1. 18 February 2011 The HM Inspector of Taxes was contacted by telephone by an MIH and RFC director, who advised that, having consulted with their legal counsel, he agreed with the analysis of HMRC’s position on Flo and De Boer, thus accepted that a liability existed.
 Source: Witness statement by an HM Inspector of Taxes, to an action at the High Court of Justice in London, dated 21 March 2012, at para 18 of Ref4b.

 

  1. 23 February 2011 HMRC write to MIH, providing revised computations of £2,200,717.41 using the AAM model, and £3,169,971.23 based on “facts and side agreements”. HMRC also confirmed their right to pursue tax due outside the normal six-year period on fraud or negligence grounds.
Source: Letter of 23 Feb 2011, in attachments of Ref2

 

  1. 3 March 2011 The legal advice to settle and why (the deliberate concealment of side letters in 2005) is documented by legal counsel, confirming what was communicated verbally to HMRC on 18 February 2011.
Sources: Legal Opinion by counsel is included as an attachment in Ref2 . Letter from MIH to HMRC denying the existence of side letters, dated 7 April 2005
Ref4    .     Of greater significance in terms of the Lord Nimmo Smith findings that
“ While there is no question of dishonesty, individual or corporate, we nevertheless take the view that the nondisclosure must be regarded as deliberate, in the sense that a decision was taken that the sideletters need not be or should not be disclosed.”

this table shows that at the time in April 2005 Rangers had 29 player files containing side letters relating to ebts under the Murray Group Management Remuneration Trust (aka The Big Tax Case ebts). This deliberate concealment when asked about the existence of the DOS ebt side letters  strongly suggests that there was every question of dishonesty  relating to the non disclosure of the Big Tax Case side letters contrary to what Lord Nimmo Smith ruled.

  1. 14 March 2011 An MIH and RFC representative telephones the designated HM Inspector of Taxes, confirming that the RFC Board had discussed the situation and wished to seek a solution. The Board asked that the parties should meet to facilitate such a resolution.
Source: Witness statement by an HM Inspector of Taxes, to an action at the High Court of Justice in London, dated 21 March 2012, at para 19 of Ref4b.

 

  1. 21 March 2011 (am) MIH and RFC representatives meet with Cairn Financial (pre-takeover financial advisors to Craig Whyte). Meeting notes taken by Cairn include an entry that reads “Discounted Option Scheme – £3.2m PAYE liability to be paid to HMRC by 31/3”. That information could only have been provided by the MIH or RFC attendees and is consistent with the rounded amount of the computation provided by HMRC on 23 February 2011. The requirement to pay by 31/3 may suggests the recognition by RFC that they could not carry any “overdue payables” beyond that date if they were to obtain a UEFA Licence for 2011/12.
Source: Meeting notes taken by Cairn Financial, first point of  Ref 4c

 

  1. 21 March 2011 (pm) Following the morning meeting with Cairn Financial, HMRC met in the afternoon with MIH and RFC representatives, as requested on 14 March 2011, to seek a solution to HMRC’s assessments. Although liability had been accepted on 18 February 2011, the actual amount due had not been confirmed. Discussions on the quantum of the liability resulted in the amount being agreed as £2,827,801.

 

That was a compromise figure, that saw HMRC’s claim in respect of Craig Moore being dropped as “out of time”, in the absence of a side letter that might have shown deliberate intent or concealment. RFC also acknowledged that HMRC had missed one payment to Ronald De Boer, which was added to the computation to produce the final agreed figure.

 

HMRC was told the payment was totally dependent on the Bank agreeing to fund it, but as long the liability was paid, or a contract to pay was signed, HMRC could be flexible on timescale to pay.

Sources: Meeting notes taken by HMRC in Ref4a and the Witness statement by an HM Inspector of Taxes, to an action at the High Court of Justice in London, dated 21 March 2012, at paras 20 & 22 of Ref4b.

 

NB: Had a contract to pay been signed before the 31 March 2011, it would have allowed RFC to tell the SFA that the tax liability was not an overdue payable under Art 66 Annex VIII (2).

 

It was noted by HMRC that RFC was now seeking to co-operate with HMRC in an effort to lower their “high risk” rating in advance of the proposed sale of the club.

 

The liability of £2,827,801 was the same figure as that specified in the Share Purchase Agreement, which saw MIH sell its majority shareholding in RFC to Craig Whyte. The same figure also appeared in subsequent creditors’ claims and court documents a year later. This demonstrates that, by 21 March 2011 at the latest, that a liability existed, was recognised and accepted, was no longer potential or negotiable but a “payable” to HMRC , and in terms UEFA regulations was an “overdue payable” in the absence of a written contract to extend the deadline for payment as well as failing to meet the other three conditions that would excuse the payable being overdue.

 

  1. 30 March 2011 Grant Thornton, Auditors to RFC, provide a letter in support of RFC’s UEFA Licence application, confirming that all payroll taxes have been paid by the due dates, but “with the exception of the continuing discussion between HM Revenue and Customs in relation to a potential liability of £2.8m“

That statement is at odds with the known positions of acceptance of a liability on 18 February 2011 and agreement as to the amount on 21 March 2011 between HMRC, MIH and RFC and that payment was due. Nor is there any indication of any “continuing discussion” between the parties.

The earlier meeting with Cairn Financial made reference to the liability having to be paid by 31 March 2011. That date is consistent with a need for clubs to have no “overdue payables” as defined by the UEFA Article 50, where proof of such in order to secure a UEFA Licence for the following season is required. The SFA’s position on proof of compliance was documented in the same source email that referenced the Grant Thornton letter.

Source: The existence of the Grant Thornton letter was confirmed in a draft press announcement set out in an email dated 7 December 2011, by SFA CEO S Regan, to be cleared by RFC. It can be found in Ref7a  along with reactions by others at Ibrox on seeing it.

 

  1. 31 March 2011 The cut-off date for submission of applications for a UEFA Licence for season 2011/12

 

  1. 1 April 2011 RFC published their unaudited interim accounts for the period to 31 December 2010. Provision was made for a tax liability of £1.7m and an interest provision of £0.9m, both related to the DOS scheme. In the accompanying notes the RFC Chairman also described the liability as “potential” and that “Discussions are continuing with HMRC to establish a resolution to the assessments raised”
 Sources: The announcement of the RFC interim accounts at Ref8 on 1 April 2011 and the witness statement by an HM Inspector of Taxes, to an action at the High Court of Justice in London, dated 21 March 2012, at para 21 of Ref4b.

 

  1. 2 April 2011 The RFC chairman, interviewed by J Traynor and K Jackson of the Daily Record following the publication of the accounts on 1 April 2011, is quoted regarding the WTC saying it “has just arisen in the last couple of months.”. In a separate article by J Traynor it is reported that “The bill dropped through the Ibrox front door only three weeks ago”
 Source: The Daily Record

 

  1. 19 April 2011 The SFA granted RFC’s application for a UEFA Licence for season 2011/12.
 Source: Andrea Traverso, UEFA Head of Club Licensing, letter in response to the Resolution 12 solicitors, dated 8 June 2016  Ref39

 

 

It is important to recognise that the status of the DOS tax liability at the cut-off date was crucial to the award of a UEFA Licence. All the documentary evidence uncovered from HMRC and court sources points to the liability having been accepted and agreed prior to the cut-off date and, as such, should have been designated as an “overdue payable” as defined in the UEFA licensing regulations.

We see from the Grant Thornton letter and the subsequent statements by RFC officials that they continued to describe the liability as “potential”, despite the weight of the evidence above being to the contrary.

It is inconceivable that RFC was unaware of the 31 March deadline and the implications for the club’s participation in UEFA competitions if they were to acknowledge that they had an overdue payable. Andrew Dickson, RFC’s football administrator, looked after player contracts paperwork since 2004. He also sat on the SFA’s Licensing Committee at the relevant time. Both he and Campbell Ogilvie, the SFA Vice President at the time, who was involved in the establishment of the DOS Scheme back in 1999, had to have had knowledge of the scheme and the relevant UEFA rules. It stretches credulity that both Dickson and Ogilvie were unaware that HMRC was pursuing payment before 31 March 2011.

It is instructive to note that the Crown in the Craig Whyte trial advised the jury that, under Scots Law, a fraud is defined as:

“A false pretence, dishonestly made, to achieve a practical result”

Does, “incorrectly describing the status of the DOS liability as potential, while knowing that description to be wrong, in order to obtain a UEFA Licence” fit the description of a fraud above?

 

 

Next: Part 2: (5 May 2011 – 6 June 2011)