The case centred on payments made by the club to players and officials through an Employee Benefit Trust (EBT) – named the Remuneration Trust – in the form of a loan, which allowed the club to avoid liability to income tax and National Insurance contributions (NICs).
The decision that the loans should be counted as payments and thus the club had failed to pay the NICs and income contributions due through PAYE was made in the First-Tier Tribunal in October 2012. The decision was upheld in the Upper Tribunal in July 2014.
Yesterday, Lord Hodge gave the judgement and the Supreme Court unanimously dismissed the appeal by RFC, upholding previous rulings.
“The unanimous decision of the Supreme Court supports our view that EBT avoidance schemes simply do not work," said David Richardson, director general of HMRC’s customer compliance group.
"This decision has wide-ranging implications for other avoidance cases and we encourage anyone who’s tried to avoid tax on their earnings to now agree with us the tax owed.
"HMRC will always challenge contrived arrangements that try to deliver tax advantages never intended by Parliament," he added.
The judgement could mean many other British football clubs could be liable for significant tax bills.
“The Supreme Court ruling confirms an earlier decision that these payments should be treated as earnings and taxed under PAYE with NICs also being due,” says Mike Hayes, a tax partner with law firm Kingston Smith.
“Other business, including other football clubs, which used the same or a similar scheme will now receive follower notices from HMRC requiring them to pay the tax due based on this decision.
“This could have serious financial consequences for those involved,” Hayes added.
“What is surprising is just how much ammunition the Supreme Court has given HMRC in pursuing other EBT cases,” said Paul Noble, head of Tax Investigations at law firm Pinsent Masons.
“HMRC will undoubtedly use this judgement to pressure other users of EBTs into settlement on their terms”
“Employers that have used EBTs to remunerate their employees and who have not settled their case with HMRC should seek advice on how this decision impacts them”, added Noble.
In May, the HMRC created a new compliance project to pursue those within the football industry it believes are guilty of tax avoidance.