Tax Case Result

The tax case result released yesterday afternoon was obviously a surprise.  After reading the findings, it is still difficult to understand how  two of the three judges arrived at such a decision. The third dissenting judge’s opinion was clearly more in line with expectations. However, in the First Tier Tribunal it is a case of majority rule.

If an appeal is launched, it will take several more months before we get the next level of decision. Appeals are not automatically granted, but in this case- with a dissenting judge and where a dispute over legal interpretation exists already- it seems certain. At the Upper Tribunal, new evidence is not introduced and the case is not re-argued. The judges at the Upper Tribunal will hear legal arguments over whether the First Tier Tribunal judges made an error in interpreting the law and will rule accordingly.

This blog brought light to a matter of public interest.  This blog has been accurate on all of the major points of the case except the one that matters most to date- the FTT outcome.

We thank everyone who has participated. Hopefully, we will see the result reversed on appeal.

Digging The Hole Ever Deeper

This week has seen strident denials from David Murray that Rangers have done anything wrong in paying 83 employees  through the Murray Group Management Remuneration Trust (MGMRT). According to Murray: “No rules were breached or circumvented, and I reject and resent any suggestion that anything was done which amounted to cheating.” This blog-post will provide an illustrative example that demonstrates just how absurdly untrue Murray’s claim really is.

First a quick recap of the rules. For the MGMRT, an Employee Benefit Trust (EBT), to be operated legally for tax purposes, money is deposited in the trust by the employer. Thereafter, the employer must have no control or involvement in the disbursement of funds. Employees can then apply to the trust for loans. The loans must be discretionary i.e. contractual obligations or wages (of any kind) cannot be paid tax-free through an EBT. Any payment through an EBT for wages or other contractual obligations would be liable to tax. Paying wages or other obligations through an EBT without deducting PAYE & National Insurance is a breach of UK tax law and is illegal. HMRC has investigated Rangers’ use of the MGMRT EBT and found it to be a sham designed to avoid due PAYE & NIC. The Rangers FC plc (In Administration) appealed this determination and this appeal was heard by the now infamous First Tier Tribunal (Tax). Rangers FC (the oldco) was able to pay higher wages to sign and retain better quality players during the decade in which the scheme operated. In fact, had Rangers paid staff the same take home wage, the club would have had to find an extra £49m to pay tax on these wages legally. This much we have discussed many times.

The next rule in question is that of the Scottish Premier League (SPL). The SPL requires that all payments to registered players are declared in the contractual documents submitted to the league (and to the SFA). The combination of illegally using an EBT scheme to obtain a £49m advantage in paying for players and violating SPL rules on declaring payments to players is premeditated financial doping. The reason for not declaring the EBT payments in player contracts is that doing so would have caused the EBT scheme to fail immediately. Players and their agents are no fools and wisely would not trust the nods and winks of the shifty wide-boy types attracted to football club ownership. They insisted that promised payments were documented. These additional documents- side-letters, second-contracts… call them what you will- blow Rangers’ and Murray’s claims of innocence out of the water.

In a previous post, this blog attempted to help the SPL’s investigation team to establish a prima facie case against Rangers. Obviously, we have no way of knowing if this was helpful in moving this case along, but it might help the media and anyone investigating the case against Rangers if we provide a road-map to just one example of what really happened. Please note that this example has been selected for its clarity rather than the importance of the player. Many of the cases, especially the earlier ones when Rangers tended to be more concerned with obscuring their actions, are quite complex. The SPL’s investigators should ensure that they see the documentation referenced below.

Gavin Rae signed a three and a half-year contract with Rangers on 1 January 2004. This contract- the official one filed with the SFA & SPL- lists an annual wage of £260,000. Curiously, the contract does not mention appearance money or bonuses. On the very same day, 1 January 2004, Rangers provided Gavin Rae with a letter that said that money would be deposited in a sub-trust of the Murray Group Management Remuneration Trust on his behalf. These amounts total £336,000. The letter also said that Rae would receive £1,000 as an appearance fee for every competitive first-team game played. From February 2004 to July 2007, Rae received five payments totalling £336,000. He also received the following amounts through the EBT for appearances: £11,000 (2003/04); £8,000 (2005/06); £20,000 (2006/07). The appearance money matches his first team appearances for Rangers.

This side letter torpedoes the argument that these payments were not contractual. (A simple guide to contract formation under Scots Law can be found here. Short version: these letters constitute a contract under Scots Law). This letter, and the others like it, demonstrate that Rangers used the EBT scheme to pay wages (appearance money) and contractual obligations related to employment. This is just one fragment of the masses of evidence that demonstrate that Rangers were “at it”.

The task for the SPL’s investigators is simple in this case. Obtain Gavin Rae’s contract as submitted to the SFA & SPL. Next, they should demand to see Gavin Rae’s side letter. After that, the task is to review the actual payments. There will be a match between promises and payments. Repeat for each of the 82 other employees of Rangers FC (now In Administration) who used the trust scheme.

The current PR campaign from Murray, and other senior Rangers’ personnel who were beneficiaries of the EBT scheme, is designed to reverse any sense of inevitability regarding amending the sporting record to reflect the cheating that took place between 2001-2011. All Scottish football fans- Rangers fans included- were cheated during these years. Do not believe the spin and dissembling from those who did most to damage Rangers FC and Scottish football.

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Wrapping It All Up

On 27th March 2011, this blog started what was to become a remarkable odyssey. Attracting a range of very well qualified contributors from across the Scottish professional world, this blog quickly grew to become the place for informed debate on the subject of the disintegration of Rangers.  It was also behind the vast majority of the factual revelations on this sorry story until it went mainstream with the broadcast of the BBC Scotland documentary “Rangers- The Men Who Sold The Jerseys” in late May 2012.

The motivation to write this blog was fired by a fear that backroom deals would allow Rangers to escape responsibility for its actions. After Darrell King (Evening Times & The Herald) rushed to get the first stories with specifics about Rangers’ tax problems into print in April 2010, the Scottish media (including King) implemented a policy of black-out and denial. In the silence of the first few months of 2011, it was feared that this entire story might run its course and never be reported. Indeed, the First Tier Tribunal (Tax) managed to complete two weeks of sitting in October / November 2010 without meriting a mention in the mainstream media.

Looking back, the idea of a deal or that Rangers could escape the consequences of their actions seems hard to believe. We can debate the probability that the required series of dark fixes could ever have happened, but in early 2011, it was an unacceptable possibility. The goal of this blog was simply to reveal the facts of the situation- no more and no less. The reputation of this blog grew because it was obvious that it contained facts, interpretations, and explanations not available elsewhere.  Although in more recent months the replies  began to look increasingly like a Celtic messageboard, the quality of discussion has always been of a high standard. (Sincere thanks to all contributors- and a special thanks to a few people who came forward with much more than just taxi driver tales and brother-in-law rumours. You know who you are!)

In starting this blog, armed with most of the facts that are now in the public domain, Rangers’ insolvency at some point in the near future was a certainty. What could not be predicted at that time was the meltdown that followed: liquidation and a new club forced to start in Division 3. Especially pleasing was the way supporters of every remaining club in Scotland came together to demand fairness and justice. Institutional efforts to forget 11 years of cheating met with a furious reaction from the most important people in the game- the fans. The availability of the facts helped everyone involved in this saga to make informed decisions.

That Rangers were forced to liquidate, form a new club, and restart in SFL Division 3 is a fair outcome. The last remaining task is to ensure that the sporting records are adjusted to account for the 5 SPL titles, 4 Scottish Cups, and 6 Scottish League Cups won during the 11 years of paying players with money they did not have. Drastic player cuts, or insolvency, sometime in the 2006-08 period would have been a virtual certainty if Rangers had not been avoiding tax. It is worth emphasising that had Rangers paid these players the same net salaries during the EBT period of 2001-2011, their wage bill would have been almost £50m higher (unadjusted for inflation). That extra £50m would have had to have been paid by Lloyds / HBOS or a chainsaw taken to the playing squad. This is the value of the financial advantage gained prior to Craig Whyte taking over at Ibrox.

Once the First Tier Tribunal (Tax) finally rules, the SFA will have to act. If, as I expect, that the FTT finds that Rangers had been knowingly operating an illegal implementation of the EBT scheme, it would discredit every trophy ever won in Scottish football if the honours acquired by Rangers during this time are not withdrawn. It is for others to decide if new winners should be appointed, but trophies gained through illegal means cannot be allowed to stand. Please do not believe the rubbish that somehow Rangers declared what they were doing to the SFA. You can see a typical “declaration” here. It does not even say that players were using the scheme. It does not say that any payments were made outside of contracts given to the SFA or SPL. It does not provide anything that would have let a tax expert know that something was amiss let alone football administrators- who are simply not qualified to do any kind of forensic accounting analysis. So let us stop with this “it was in the annual accounts” nonsense!

Short of assisting with interpreting the FTT findings (if necessary), the work of this blog is now complete. I urge you all to keep the pressure on the SFA to ensure that the last chapter of this story sees that justice is done.

The Last Drink In The Last Chance Saloon

It is roughly seventeen months since this project started. Despite all of the revelations from this blog, and from other ‘new media’ outlets, little has changed in the world of Scottish football. This might seem a strange claim given that the largest football club in the country has become insolvent and now sits on corporate death-row awaiting its execution. However, the major institutions that feed on the blood of Scottish football fans: the SFA; the SPL; and the newspapers- appear to have learned little from events in this time.

They still believe that the people who pay their wages are imbeciles. They still dish out fatuous lies and peddle disinformation as if Sir David Murray was still in his heyday. The hysterical exaggerations and tales of impending financial doom should be transparent to the businessmen who fill most of the Chairman roles at Scottish football clubs. Anyone with even a few minutes of business experience will see through the lies of the Scottish football establishment. These scare stories are not the issue. It is the dangling of long requested changes in the structure of the Scottish game that will present clubs from both the Scottish Premier League and the Scottish Football League with a dilemma.

From their public statements, it is clear that the driving forces behind this attempt at league-rigging are SFA Chief Executive Stewart Regan and SPL Chief Executive Neil Doncaster. Despite being paid to promote the Scottish game, they have spent recent weeks trying to convince advertisers and TV companies that their product is worthless without someone representing Rangers’ legacy playing in the SFL1 next season. It is as if Sevco Ltd was a panacea and that this new club will be guaranteed promotion to the SPL within a single season.

Let us be in no doubt. Scottish football faces a period of turmoil and some financial belt-tightening regardless of what happens in any of the upcoming votes. (If Servco Ltd are forced to start in SFL3, the nattering nabobs of the mainstream Scottish sports press will doubtless blame every player transfer and setback on ‘internet bampots’ and shortsighted fans of so-called ‘diddy teams’). The Scottish game became unsustainable and unhealthily unbalanced towards just two clubs. In an era when it is easy to watch the best football from every country all week long, we need to extract the cancers that have been devouring our game for over twenty years rather than battling to preserve them. Among the assorted symptoms of the illness facing our game are:

  • Scottish football has failed to develop a single stand-out talent since the early 1980s
  • Scottish football has been spending more than it takes in for far too long
  • Scottish football has fallen far behind global standards in the quality of entertainment it offers

Scottish football had become dull and uninteresting for all but the fans of the two clubs that could entertain thoughts of ever winning the league.

There is a now a golden opportunity for creative minds to remake the game. Instead, we have intellectual pygmies telling us that everything in Scottish football is fantastic and must be saved at all costs. What is worth saving? Declining attendances? A terrible set of TV contracts that do not realise the full value of the Scottish game? A national team that cannot qualify for any international competitions? We have a game that is viewed with universal contempt for both its lack of technical quality and the lopsidedness of its top division. This is where our game finds itself almost three decades after the “Souness Revolution” started at Rangers. The false economies started by David Holmes, and placed on steroids by David Murray, eventually devastated all around it. Rangers embodied the ideas that financial might made right and reckless spending was the key to success. Their demise should be a cautionary tale to others to get their house in order. Instead, the Scottish football establishment wants to send the signal that if you are going to fail, make sure you do it on a spectacular scale: we will make everyone else carry you if it goes wrong.

Mr. Doncaster trained as a lawyer and has an MBA. If Scottish football was a case study at a business school, anyone submitting a paper that recommended crushing the last remnants of fairness in the game to prop up a failed old-order would not get a passing mark. Doncaster in particular is failing. (Funny that Messers Doncaster & Regan find it so easy to predict the effects of Sevco Ltd playing in SFL3, but could not use these same skills to anticipate Rangers’ implosion. Even when the aforementioned ‘internet bampots’ had warned years earlier of a crisis brewing at Ibrox, the men with the crystal ball today were unable to see something that was so obvious). When the dust settles on this disaster one way or another, one can only hope that Doncaster and Regan have absented themselves. It is clear that they lack the imaginations required to improve our game. Our hopes for restoring the thrill of Scottish football now rests on the men who run the clubs in the SPL and the SFL. We must hope that they have the backbone to stand-up to being bullied and the foresight to realise that all that is being dangled by Regan & Doncaster can be obtained anyway- without sacrificing the game and without the hired hands for whom this all appears to be just a job.

If fairness fails and Sevco Ltd is able to field a team in the SFL1 next season, it is for each fan to make an individual decision on whether it is worth returning to watch a game played with loaded dice. For those who do decide to go back (I am still undecided), something will still be missing in the game. An unfillable void will have opened. The men who will vote on this decision have to realise that they are not just voting on short-term revenues. They are going to irreparably alter the Scottish game whatever happens. Money will ebb and flow in football in proportion to the excitement and quality of the competition. If fans believe that there is no competition because a winner is preordained, money will leave and it will stay gone.



Trying something new. Bear with me if this turns out to be a bridge too far for my technical skills.

Never A Penalty!

The Scotsman today is carrying a remarkable interview with former Rangers and Scotland coach Walter Smith. It is worth noting in a couple of respects.

This is the first interview (of which I am aware) that Walter Smith has given since withdrawing his short-lived bid to purchase Rangers. Since that time, Alex Thompson of Channel 4 News has been trying to get Smith to answer a few simple questions:

– Did you receive payment from any of the EBTs Rangers / Murray Group established to make tax-free payments to employees?

– If so, when did you receive these payments?

– If you received such payments, were they significantly after your employment with the club ended?

– If you received payments long after your employment ended, for what purpose were they made?

Of course, I have no way of knowing if the journalist, Alex Gordon, has ever heard of Alex Thompson or follows my twitter feed. Scottish journalist doing research? After recent reports that 83 Rangers employees had received tax-free payments through the EBT, it would be a fairly obvious line of questioning. That another former manager, Graeme Souness, received a series of payments through the EBT scheme ten years after he resigned also raises some awkward questions. If Mr. Smith did not receive any payments, or if such payments are easily explained, I am sure that he would have welcomed the opportunity to clear any misunderstandings. Oh well. back to you Mr. Thompson.

Walter Smith’s interview can be seen as part of the PR deluge of terrifying stories about the great disaster that will befall Scottish football if Sevco 5088 Ltd is not allowed to enter a team in the Scottish Football League system with instant promotion to the first rather than the third division. This past weekend has seen many such articles and we should get used to more shrieking hysterics as we approach some kind of decision point. (Such is the bureaucratic incompetence within the organisations that run Scottish football, no one is exactly sure when a final vote might take place).

Mr. Smith might be a genius at constructing anti-futbol defences (I do admire his pragmatic approach to coaching), but he is either being disingenuous in this article or is struggling to grasp the administrative details. Smith is reported as saying: “Ten years ago Motherwell went in to administration. Four years ago Gretna went defunct. So, surely the SFA should have put sanctions in place then? That’s why I am saying they have been negligent. Now we’ve got a free-for-all around Rangers and everyone is having a kick at them”

This is a great example of the type of factually incorrect statements that the Scottish media is fond of regurgitating. As the old cliche says- an untruth repeated often enough is eventually accepted as fact. So let us refresh Mr. Smith’s memory.

The SPL introduced the 10-point penalty for going into administration during a season, or being in administration at the start of season, for the beginning of the 2004/05 campaign. Motherwell (and Dundee) were already in administration when the new rule came into effect. Both clubs were able to conclude CVAs fast enough to avoid the 10-point penalties and  to continue the life of the existing legal entities. The same rules that were introduced then have been applied to Rangers. The SFA are a bumbling shambles, but let us assail them for their actual mistakes. It is not the SFA or SPL’s fault that HMRC want to pursue investigations of what happened at Ibrox in the last 11 years and would not agree to a CVA.

The case of Gretna is actually similar to what happened to Rangers FC. Gretna owed its creditors (including HMRC) more than it could pay and the club went into administration in 2008. Unable to fund a CVA that was acceptable, Gretna FC was liquidated. That was the end of the Gretna story. Supporters formed a new club, Gretna 2008 FC and were admitted to the East of Scotland Football League. (Those of us who would accept a Sevco 5088 Ltd team entering the third division are actually still offering this club a huge advantage over every other newly formed team). If only Gretna had Duff & Phelps on the case to promote fictions such as the one that says that a liquidated company lives on so long as its assets are sold as a job-lot rather than individually.

Mr. Smith appears to be deliberately trying to confuse us and drum up sympathy for the new club. The only punishment that has been administered in the Rangers saga was to the old Rangers FC for experiencing an insolvency event. The rule that applied this penalty has been on the SPL books for eight years! (The SFA does not need to have a separate punishment).

As yet, there have been no penalties applied for the oldco Rangers FC pocketing the millions of pounds that were deducted from players’ wages to be paid in tax while other clubs paid their dues.

As yet, there have been no penalties applied for oldco Rangers paying the majority of their players through a mechanism that is, at best, in violation of SFA and SPL rules. I expect that when the First Tier Tribunal (Tax) returns with its findings in Rangers’ appeal of the Big Tax Case, that use of an illegal tax strategy will be added to the list of offences. If found to be using the EBT scheme illegally, it will prove that Rangers obtained the benefit of paying its players with money it did not have. How can Smith complain about penalties that have not been levied yet?

We all know this stuff already, as I am sure, Mr. Smith does too. There is a studied ignorance that has become fashionable in certain circles of late. They pretend to not understand the facts. In this case, Smith is trying to drum up support for the notion that people have been “kicking Rangers while they are down” and “haven’t we been punished enough”?

Let us be fully aware of the truth: The Rangers Football Club plc has not yet been punished AT ALL for its actions of the last eleven years.

There is a simple way for Sevco 5088 Ltd to avoid all talk of sanctions and punishment. Apply for entry to the Scottish Football League third division without claiming that a transfer of the oldco’s SPL membership has taken place. By not forming any ties to the old club, Sevco 5088 Ltd can avoid any historical liabilities. My guess is that all concerned- the SFA, the SPL, and the clubs would breathe a sigh of relief and would be delighted to draw a line under this disaster. However, time is not on their side. If Sevco 5088 Ltd is to field a team of any description next season, an acceptable solution must be found quickly.


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