How EBT’s Work – and How They Go Wrong – the Melchester Rovers Debacle

Suddenly the acronym EBT is front and centre in the sporting news, leading some to speculate that a decision from the Tax Tribunal dealing with the appeal against tax assessments by Rangers is imminent.

I have therefore, in an effort to clarify and explain the matter to new readers, taken a post I wrote in January and revised and extended it. It also has Roy Race and Melchester Rovers in it.

I should declare that neither the famous footballing hero, Mr Race, nor his world-famous club, are accused of wrongdoing by me. They merely provide a hypothetical example. In addition, I refer to a Mr Waxendale-Balker. He should not be taken as having any connection to a tax expert called Mr Baxendale-Walker.

Now, on with the explanation.


Who would have thought that the initials EBT would become so common in football discussions? The Employee Benefit Trust was a mechanism used by some businesses to pay their employees and contractors in a “tax efficient” way.

Put very simply (as this is a very complex area) the employer set up or contributed to a separate, arms-length, Trust. Often these Trusts would create separate “Sub-trusts” from which payments were made.

Legitimate use of an EBT allows employees to approach the Trustees for a loan or similar payment. As long as this payment could not be identified as a contractual right, (ie what HMRC refers to as “disguised remuneration”) then the recipient did not need to pay Income Tax and National Insurance on it. In addition, the employer did not need to pay the Employers’ National Insurance contribution either.

To make a scheme legitimate therefore, the following were advisable, if not essential.

1                    There would need to be no evidence of the employee having an entitlement to anything from the EBT.

2                    It would be prudent if, every so often, the Trustees were to reject an employee’s application for funds.

The “loans” to the beneficiaries of the trust would be non-repayable or repayable on such lengthy terms that they were in fact never to be repaid. The jargon term used was “lend and forget”.

In the late 1990’s there was a surge in the use of these EBT’s. Many were marketed by a company owned by Paul Baxendale-Walker. Mr Baxendale-Walker is a former solicitor who, earlier this year bought “Loaded” magazine.

He has, according to the Guardian – “a variety of business interests including a tax consultancy and a soon-to-launch gluten- and lactose-free restaurant called The Treehouse, complete with an “electronic crèche” for children. Companies House records also show that he funds movie, TV and music ventures, including financing Peter, a film about the Yorkshire Ripper, Peter Sutcliffe.

He also owns Bluebird Productions, which makes hundreds of X-rated movies, a number of which he directs and even occasionally stars in. “I make adult films; some people use the word porn. I don’t mind – the content is what it is.”

Mr Baxendale-Walker, respected author of a number of legal and tax-related text books

He literally “wrote the book” on the topic of EBT’s with eminent tax QC Andrew Thornhill, who will re-appear below.

Mr Baxendale-Walker has some extreme views on tax. As he said in a BBC Money Programme episode in 2006:-

“I’m actually helping to cure people of various ills, various cancers,” says Mr Baxendale-Walker. “Because tax is a cancer that will kill your business if it’s not treated. So I see myself as a doctor too.”


The doctor will see you now…

A Fictional and Fictitious Example

It is often best to look at an example to see how the scheme might work, and how it could have gone wrong.

As an example of the benefits, let us take a football team – Melchester Rovers. The manager, Roy Race, has decided that his team needs an influx of top quality players. Sir Sam Barlow, the Chairman, is conscious of the need to pay economic wages. How can this be done?

Playing for the jersey, or playing for the pay cheque?

Sir Sam, who made his fortune in the international liquorice markets, meets a legal whizz kid called Mr Waxendale-Balker who extols the virtues of the scheme to him. Sir Sam signs up Melchester Rovers for one of these “off the peg” schemes – the “Melchester Rovers Tax Efficient Trust” is set up, and he goes shopping for players, after having paid Mr Waxendale-Balker’s firm a lot of money to “buy” the scheme.

Sir Sam is a wily businessman. You do not get to the top of the international liquorice trade without being smart enough to judge what places prefer black liquorice and what the red.

“I have bought the tax scheme from the exotic Me Waxendale-Balker,” he says. “I have also bought his book. Why do I need to pay him year after year to run the scheme?”

Sir Sam has a brainwave. He decides that his own company will “sell” the operation of the EBT scheme to Melchester Rovers, and for twice what he paid Mr Waxendale-Balker for it, each and every year! More money for his main business and greater losses for Melchester Rovers which, as mentioned below, does not bother him!

Sir Sam sits down with the Signor Clemenza, the agent for a couple of Italian star players. They each want paid £1 million per year to sign for Melchester Rovers, and, as Ruud Gullit is reputed to have told Ken Bates regarding his salary demands when Chelsea manager, it is to be paid “netto”.

Sir Sam quickly works out that, to pay each player £1 million “netto” it will cost Melchester Rovers around £1.75 million each, taking account of tax and NI.

But Mr Waxendale-Balker’s scheme gives the answer.

If each player, Luigi and Roberto, has a contract which pays him £200,000 per annum gross, then the tax and National Insurance payable on this, including the employer’s contribution, will be around £110,000. If it is agreed, with a nod and a wink, that the players will each be able to receive around £900,000 per annum from the Trust as “loans” which will never be repaid, then Melchester Rovers have just saved themselves almost £1.5 million per annum in tax and NI, and Luigi and Roberto each are getting their £1 million “netto”.

As the payments to the Trust by Melchester Rovers do not count as wages, then they do not reduce the profits, and therefore might lead to an increased liability for Corporation Tax, but, as Melchester have lost millions of pounds over the years in the pursuit of success, they have huge accumulated losses to set against any profits, and therefore that consideration is irrelevant. In fact Sir Sam Barlow has been able to apply some of the losses arising from his company’s ownership of Melchester Rovers to reducing the tax liabilities of Barlow International Liquorice PLC.

There is only one problem with the plan. Clemenza is not stupid. How, he asks, will his players be assured that they will be given the “loans” and more importantly, what if the Trust asked for them to be repaid?

Here Sir Sam makes the fatal mistake. He, along with Roy Race, Blackie Gray and other executives, have already been benefiting from the Trust. As the Trustees are their best friends from the golf club, and as Sir Sam is a Trustee of other schemes run by his friends, they know that the Trust will never look to get this money back. Clemenza points out that he does not trust anyone, unless they are Family.

Signor Clemenza, the renowned football agent

Sir Sam comes up with the solution, but without asking Mr Waxendale-Balker, or anyone else. He provides Clemenza with a letter for each of the players on Melchester Rovers notepaper, confirming that the loans will never have to be repaid, and that, if they are ever called upon to repay them, Melchester Rovers will refund the Trust. Clemenza is happy, as are his players, and he persuades the “sweetie billionaire” that, with the money he has saved, he could actually afford another of his players, Wilhelm, an experienced Dutch international.

As the years pass, Melchester Rovers remain hugely successful, and fulfil Barlow’s boast that, for every ten pounds spent by their archrivals, Melborough, Melchester will spend twenty.

Sir Sam Barlow, the “sweetie billionaire”

These schemes are so effective and efficient that a number of top quality players sign for Melchester over the years, and everything is rosy.

However, a fateful error occurs. I print below the text of an Internal HMRC Memo detailing what happened.

“HMRC Memo – Mildly Secret – Only to be read by Executive Officers and Maintenance Engineers

From Hector, the Inspector

To Lecter, the Collector

Hi Hannibal!

I wanted to report on my visit to Melchester Rovers. I know that ever since you took over the EBT department in Tax Towers, you have wanted to nail Melchester and Sir Sam Barlow, especially as you want to see Melborough win the league from your seat in the directors’ box. Well, good news!

We were in for a routine inspection, or as you said, “lift every carpet in the place till you find something”. You won’t believe it! In the “Personnel” filing cabinet in their office we noticed a folder labelled “HMRC MUST NOT SEE THIS FOLDER”.

We thought nothing of it until, as we were about to leave, the Director of Finance at Melchester said “You’re all done? Glad you didn’t look at the secret folder!”

I therefore thought this might be worth investigating. Lo and behold, the folder contained 37 separate letters, all on Melchester notepaper and signed by Sir Sam himself. Each letter tells the player to whom it is addressed that “Don’t worry about the wages we are paying you through the Trust as a loan – we confirm that you will never have to pay it back.”

I suspect this might be useful in showing that the EBT has been operating improperly.

Kind regards,


“You do not want me to look at this secret file?” said Hector from HMRC.

From that point the walls of Mel Park come tumbling down. HMRC demand settlement of millions of pounds in unpaid tax and National Insurance, together with interest and penalties. Sir Sam’s letters are the “smoking gun” proving that the Trust “loans” were “disguised remuneration”. It is not known if Melchester Rovers’ Director of Finance “sleeps with the fishes”.


Back to Reality

It is alleged that Rangers players and officials too benefited from the relevant EBT by receiving what was truly taxable income through it.

Whilst the Trust in question was set up covering a number of companies in the Murray International Holdings empire, assessments of tax regarding Rangers employees would come to Rangers.

The first determination issued by HMRC asking for payment of tax due as a result of the EBT’s was sent to Rangers in February 2008. After receiving further Determinations, an appeal was lodged and this ground its way through the First Tier Tribunal for many days spread over a couple of years. The case concluded on 18th January 2012 and a decision is still awaited.

The interests of Rangers were represented by Mr Thornhill QC, the creator of the EBT device along with Mr Baxendale-Walker. As part of the terms of the takeover or Rangers by Mr Whyte, the control of the appeal lay in the hands of Murray International Holdings, not Mr Whyte and Rangers.

As the case progressed, there were various references to “favourable” legal advice.

Often legal advice and the “spin” placed upon it, depends on the question asked.

If Mr Thornhill was asked if Rangers would “win” the appeal, then it all depends on what one means by “win”.

Andrew Thornhill QC – one of the leading Tax Counsel in the UK

For example, on one view, a decision which reduced Rangers’ liability by £1 would be a “win” (though a Pyrrhic one). Some might view a “win” as being Rangers escaping with no liability at all, and any sum at all being payable as being a “defeat”.

Of course Rangers did effectively “win” the case so far. It was able to continue operating, and spending, for almost four years before administration arrived, not as a result of this case at all. All the time this potential bill loomed over the Club, but no provision was made to pay anything of it by Sir David Murray, John McClelland, Martin Bain or anyone else.

The Tribunal was held in private, possibly on security grounds, but it is expected that the judgment will be published, and even though the hearing was private, it is not necessarily the case that the judgment would be anonymised.

The case took so long, it is understood, because each individual payment from the Trust would have had to be looked at. Rangers appeal is against an assessment totalling around £36 million pounds in unpaid tax and interest and a later hearing would normally have been needed, in the absence of agreement, to establish penalties. Penalties can run to 100% of the unpaid tax in particularly heinous examples.

As Rangers are on the way to liquidation, there is unlikely to be any substantive hearing regarding penalties.


What Does HMRC Really Think of EBT’s?

The Government published a detailed look at the issues of “Disguised Remuneration” prior to changes in the 2011 Finance Act to clamp down on what the tax authorities see as abuse.

As the document says:-

“In many cases, these third party arrangements allow an employee to enjoy the full benefit of a sum of money paid or assets provided while arguing that, because of the structure of the arrangements, there is no legal right to the money or assets. This argument is used to support a proposition that income tax and national insurance contributions (NICs) are due (if at all) only on the use of the money or assets during the period of the employee’s employment and not on their full value.”

So even “legitimate” use of EBT’s to reduce tax liabilities has ended.

The Government estimates that these measures will increase tax revenues by around £500 million per annum. It was thought that there were around 5,000 employers and 50,000 employees benefiting from these schemes.

As the consultation document stated:-

“The objective of this legislation is to prevent the avoidance or deferral of income tax and NICs on employment income. It will impact on employers and intermediaries who use trusts or loans to reward employees with a view to avoiding or deferring paying tax and NICs. The data which HMRC has on known arrangements suggests that there is a broad range of employers who have implemented these arrangements – around 5,000. The type of businesses thought to be involved ranges from large employers in the financial services industry to single-employee limited companies.”

I think it is fair to say that HMRC do not like EBT’s whether operated “corrcetly” or not!

Posted by Paul “Billy’s Boots” McConville


Filed under Alleged Humour, HMRC v Rangers, Rangers

27 responses to “How EBT’s Work – and How They Go Wrong – the Melchester Rovers Debacle

  1. josephmcgrath112001809

    I always knew that Roy Race was just too goody goody to be true!

  2. John Burns

    First Class as usual, Paul., The amount of free liquora**e enjoyed by Murray and the Scottish Sports Churnalists will probably never be known.

    So, with all the current furore, including, Minty breaking cover with an ‘Exclusive by Keith Jackson’; are we now expecting the FTT decision any day now?

    It seems strange that after last week’s Brechin Address by Charlie, he has now dropped into the bunker, just as Minty & Co have popped out!!!

    They dost protest too much!!!!!

  3. Steve Cotter

    Love your stuff Paul. Small pedantic point: EBT is not an acronym. Why not? You cannot pronounce it.

  4. George Murray

    Why should I take any of this seriously since SIR DAVID MURRAY told me that everything was kosher and he is a knight of the realm and Scotland’s greatest living business man with a record of unalloyed success!

    • ecojon

      @George Murray

      I suppose if the football titles go there may even be a stripping of Knighthoods – Can’t remember if he got his gong for services to football or industry. Doesn’t really matter I suppose as he’s a disaster on all fronts.

      Reminds me of the joke I heard in the pub. It was at the Olympics after Lizzie had done her duty and her and Bond return to the helicopter and he asks: ‘Home, Ma’am?’ and she replies: ‘No way, straight to Brechin, they cheats Rangers owe me a lot of money’.

  5. George Murray

    Or should I say alloyed success!

  6. Now, surely even the most pig headed, stubborn as a mule, slow as a sloth bear in deep denial can understand that………
    ………..or would that be anthropomorphic? Maybe they still can’t see the trees they sh!t in for the woods.

  7. ecojon

    Well now that we know what a serious matter this is I’m delighted that Sir David, Wattie and McLeish have told us there was no cheating at Ibrox – it really is reassuring that these stalwarts of Scottish Football are able to provide these cast-iron guarantees.

    Not so sure about Mr Dodds though – In his latest defensive move he seems to be marching out-of-step and to a slightly different tune and then scored an own gold.

    I’m beginning to think he canna speaka da Italiano. Neither can I – but how he described his EBT transaction sounds very ‘netto’ to me. Still we know the main men have said they weren’t involved in cheating so everything’s OK isn’t it?

    BTW – did anyone see Ally’s mumbling at the televised press conference yesterday. What was that all about? I’m not a betting man but I reckon Green has told him they’ll be going to the Commission and admitting guilt and accepting whatever penalty is handed down.

    Green being interested in the cash has probably also made it clear he doesn’t want a fine and that means titles and cups have to go. Well the players have walked, the cups and titles are getting boxed-up for the removal men and who can be sure when Ibrox is going to go.

    Still look on the bright side, Green will have plenty of red bricks to sell a wee bit of history to the faithful and no doubt there will still be some hanging about looking for a leader. What a pity that they haven’t realised that the future of the club could be in their hands if they could throw-off the bile and concentrate on football and enjoy it for the game itself and not as a mechanism to grind people into the dust whom they have added to that ever-growing list of perceived enemies.

  8. Project Walliams

    Paul, what are you saying?
    Comparing T’Rangers to Melchester Rovers is scandalous!
    Melchester Rovers were broke, they suffered a mass exodus of players, relegation, unscrupulous owners. They also suffered from ‘retroactive continuity’ where various parts of the unwanted bits of Melchester history was altered or ignored at the start of each new season in order to sell more comics to dumb punters .
    What has this to do with Rangers?

    • Project Walliams

      …no, wait a minute.
      Ah! I see what you’re doing.

      • ecojon

        Don’t worry the Bears won’t. Green has already proven that they don’t read the small print. They just look at the big brightly-coloured picture that Green draws them 🙂

  9. charliedon

    Sir David’s strategy of releasing a statement through Press Association tells us all we need to know. It allows him to put his spin on the issue without the possibly troublesome matter of having to clarify or elaborate on any of the points he makes.
    He says. “The trustees could and did make loans to individuals carrying interest with scheduled repayment dates.”
    Wouldn’t it be interesting to have sight of some of these agreements and see the actual repayment terms? Then the recipients could be asked if the specified repayments have been made. Unless, of course, the scheduled repayment dates are so far in the future as to be of no practical effect.
    However, I’m sure HMRC have all this in hand.

    • ecojon


      In all of the statements not one probing question.

      Not one word of jounalism just an acreage of stenography – what a sorry sorry state of affairs for Scottish jounalism.

      Thank gawd for the internet bampots 🙂

  10. Geddy Lee.

    With changes to the financial act only being implemented in 2011, can Rangers argue, with any degree of hope, that only their “transgressions” since the changes should be considered?

    • ecojon

      @Geddy Lea

      Well they can argue I suppose but that would only affect HMRC not the footballing issues because there doesn’t need to have been an ‘illegal’ use of EBTs to fall foul of the football legislation.

  11. Geddy Lee.

    lol ecojon,
    Did you read Big Ecks comments? It sounds that he’s prepared to have a “square go” with anyone who wants his medals.

    He is displaying the same clueless bluster as “Walter” and Sally. You can smell the panicked guilt from here. LOL

    • ecojon

      @Geddy Lee

      Well he is a real thicko so he may well have a complete defence of insanity to any charges. I reckon Hector had got a court order to seize his scribblings during matches – the whole story is probably there 🙂

      There was that many statements yesterday but I think he was the one that kept going on about his lawyer clearing the EBT every step of the way. Can you imagine the stooshie if his layers were HM – now what would that do to paranoia readings

  12. EK Tim

    Paul, Love reading your stuff, but would like you to clarify one thing.

    Are we not in danger of letting the MSM / SDM / TRFCL(Sevco) confuse everyone by talking of EBT’s? I thought EBT’s and how they were operated, ie the second undeclared letters, is a legal issue for HMRC?

    The problem RFC(IA) have was the DUAL CONTRACTS for beneficiaries of EBT’s, where one of these contracts (the letters) was not declared to the SFA. This has ALWAYS been illegal under SFA rules, and so regardless of the EBT situation RFC(IA) broke SFA rules for many years.

    I understand the punishment for improperly registered players is the award of a 3-0 defeat for every game any player played in. That leads to every trophy in the past 10 years or so being stripped from RFC(IA) history and awarded to the clubs which didn’t cheat.

    Murray and his apologists are being clever by saying they broke no laws of the land and until HMRC find against them the reality is they haven’t!

    However this should not deflect the SFA from investigating the dual contracts issue separately.

    Hope this is correct, and if so we need to stop the MSM apologists confusing the two! Hail hail!

  13. Liquidation, SFL3, players walking away forget those …side contracts and the EBT’s will be the shame that will follow and follow The Rangers story for the next 100 years, this is their Ben Johnson moment. When found guilty; the club’s notoriety for arrogance, violence and bigotry will be superseded by a much more brutal condemnation; Cheating! where there is no redemption in the eyes of sports fans.

  14. Brilliant Paul. Pity there is so much to write about at the moment, I’d have hoped this would have got a better airing. Fear not though i’ll be sendignt he link to a few folk I know…

  15. Pingback: Some Thoughts On Conflicts, EBT’s and SPL v Rangers in Reply to Comments | Random Thoughts Re Scots Law by Paul McConville

  16. p groom

    have never understood the blarney that ebts are perfectly legal ( except when they are not). footballers and bbc announcers work for a sum of money agreed with their employers. ( they are not self-employed. the self-employed pay themselves out of their earnings, if any). the money the employers put into ebts is part or even the whole of the sum previously agreed. it is ludicrous to suggest that another sum entirely was involved. something not agreed with the employee perhaps ? such as a surprise gift maybe… not a chance. so the moment an employer transfers employees money to an ebt without tax being deducted first , an offence is committed. if tax was deducted first and then not paid to hmrc theres not much doubt that it is an offence also. I know, the tax advisory/evasion/avoidance industry would chuckle at this simple approach….

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