Kait Borsay looks at the tricky truth behind a Scottish institution as Rangers face an uncertain financial future.When I first looked into the whir of financial chaos that was threatening to implode the club, from a football perspective all was rosy. Sitting pretty at the top of the SPL and 12 points clear. Now some two months later Rangers sit in second below Celtic, are out of the Scottish Cup and there remains a pretty grim situation playing out behind the scenes: they are involved in a potentially crippling tribunal case with Her Majesty's Revenue and Customs that concluded a few weeks ago. And that's only part of it. So what's going on? HMRC, the folk that collect our tax to you and I, are aggressively pursuing an unpaid tax demand issued to Rangers for £49million. This comprises of £35m in unpaid tax and interest and £14m in penalties. Suffice to say, for a club that is already in the red (Whyte took responsibility for the club's £18m bank debt to Lloyds when he purchased the club from Sir David Murray for £1 in May last year, other creditors are said to take the total up to £30m) that's a panic-inducing amount of cash. If the tribunal, which took place mid-January after postponement last November finds against Rangers, HMRC can demand payment immediately, regardless of whether the club launches an appeal or not. The reality, Whyte has recently admitted, is "obvious"; if the club has to pay up he may be forced to take them into administration. The club has been hauled up over its past use of Employee Benefit Trusts (EBTs) to pay part of their players' salaries - Rangers paid money into a trust which then paid out to the beneficiaries (players) as a loan. The loans are not subject to income tax or National Insurance - in fact they're hardly taxed at all. Where the issue of tax evasion arises is that these payments cannot be made on a contractual basis - this would make them wages and therefore subject to the usual deductions - and that's the point where the club find themselves in trouble. HMRC say they have proof of the misuse of EBTs in the form of documents and emails between those in charge at Ibrox and players' agents. It's been suggested that Rangers are one of many football clubs who have used (or misused if found guilty) EBTs to meet the demands of payroll. This could very well be seen by Government as a test case, which, if won, would open the doors to the recovery of millions of pounds from other clubs who withheld in a similar way. Rangers deny the accusation of tax evasion and have been to two prior tribunals to fight their case. No decision was reached in either. They now find themselves in a period of inefficacy after what is expected to be the final hearing on the matter. Some will argue that the club made full use of taxation loopholes, HMRC will insist that in paying top earners at the club in the most 'tax efficient' way Rangers crossed the divide between tax avoidance - which is legal - and tax evasion, which is not. Following the tribunal, which was held in Edinburgh a few weeks ago, Rangers must now embrace a period of uncertainty. A decision is expected in weeks, if not months, although most expect the verdict to be announced in mid to late March. In April last year Alistair Johnston, then chairman of the club was bullish in his optimism of a successful outcome in the case. "We continue to vigorously contest HMRC's challenge on the taxation treatment of the trust and, in doing so, continue to receive reassuring opinion from tax, accounting and legal specialists." Encouraging words. But then the club was about to be sold to Whyte - the lifelong Rangers fan who was completely aware of the tribunal process happening at the time of his 85% purchase from Murray - something that puzzled many as to why he should so fervently persist with the acquisition. A few days after he became the club's new owner, Whyte was in a defiant mood. "Our advice is that we're going to win the case. I'm confident that we are going to win the case and that there will be no liability there." But last October, Whyte, who was not involved with the club at the time that EBTs were in use, discussed administration in an interview with the Daily Telegraph. "It is one of the possibilities we have looked at, yes. The choice in terms of an adverse finding is pretty obvious really." It also appears the club may not challenge the findings of the tribunal, should they be found liable for the tax debt, with Whyte seemingly keen to avoid the issue being dragged out any further. "It's in some ways worrying but in other ways it would draw a line under a sad event and a sad period in history and would be a chance for a fresh start for Rangers," he said in an interview with Scottish television in October last year. By entering into administration the club would incur an automatic 10 point penalty, as well as potentially exposing themselves to other sporting penalties open to the SPL. Whyte, having transferred the club's debt to a holding company he owns is effectively the club's main creditor, which he claims puts the club and himself in a position of power should they lose the case to HMRC. He could expect to buy the club back from the administrator without its other debts - something commonplace throughout this recession. You can concur that this proposal would cause little disruption out on the frontline and mean little change to matters on the field, leaving the team to concentrate making up lost ground on Celtic. Without getting too complicated though, HMRC could block the sale of the club back to Whyte - challenging any arrangement made with creditors. If HMRC win the tax case they could argue they are the biggest creditor, therefore they would have the power to determine who controls the club and when it comes out of administration. There has been speculation that Rangers could even have to start again, to be re-established as a 'new' club - though this is generally seen as a pretty extreme measure. And don't forget, even if the tax authority has little chance of recovering the money owed to them they may still want to use the case against Rangers to set a legal example to others. And just one more coal to add to the flames: HMRC's recent behaviour indicates that it's now not shy to use a legal power that it has laid dormant for several years - this holds directors, including those former, personally liable for unpaid tax, particularly National Insurance. What else?Think this is purely scaremongering? Well the courts don't. They are also concerned by Rangers' financial fragility. In launching legal action for breach of contract former Rangers chief executive Martin Bain went to the courts and successfully persuaded a judge to ring-fence £480,000 of Rangers' money should he win his case. He's actually seeking damages for loss of earnings of around twice that amount but such was the case for "real and substantial risk of insolvency" the money was frozen ahead of his court case. Former finance director Donald McIntyre, pursued a case for alleged breach of contract and successfully managed to have £300,000 of the club's assets frozen last year - the case was settled out of court in December. This has to help paint some of the picture at Ibrox. There is money ring-fenced for the payment of another tax bill - relating to the exposure of another loophole in tax law. This one's probably too much to go into after all this tax talk but basically it emerged in the club's accounts in April last year that from 1999 to 2003 they had used a Discounted Options Scheme - a bit like an EBT in that it's used for the avoidance of paying tax, but works by issuing shares to a beneficiary from a company set up in a tax haven. HMRC state that the club owes £2.8m in back taxes and interest, £2.3m of which has reportedly already been frozen on their behalf. Rangers have just launched an appeal against this charge and the reported £1.4m owing in penalties. Capita Trustees, which provides pension services to employers, had taken court action against Rangers in pursuit of an unpaid bill. It was seeking payment of what Capita's lawyer calls a "straightforward commercial debt for advisory services rendered". They agreed an out of court settlement. Just a few weeks ago the PLUS stock exchange suspended trading in Rangers when the club was found to have failed to publish their audited accounts up to June 30 2011 or hold their AGM on time, therefore breaching the Companies Act (2006). So why weren't the audited accounts published in time? The club say the delay is due to problems in finalising the audit: "Which the board believe will be completed on or around 31 January 2012. The delay in finalising the audit is principally related to the ongoing HMRC tax tribunal." Last week Whyte infuriated Rangers fans furthermore by delaying the AGM for the same reason. The postponement came after Whyte had been forced to deny claims he had used a loan secured on future ticket sales to facilitate last year's takeover, which involved paying off a debt of £18m to Lloyds Banking Group. He did, however, admit to borrowing money from Ticketus - a group that allows clubs to borrow money on the strength of future season-ticket sales. "There is nothing unusual or untoward in this arrangement which was put in place at the club long before my takeover last year and was used by the previous management," he said in a statement released on the club's official website. The SFA have confirmed that Rangers have until March 31 to publish their audited accounts and in turn show that they do not owe money to the tax authorities. Without this proof it's unlikely Rangers will be granted a license to play in Europe next season. And there's more. Whyte failed to disclose to PLUS until November 30 last year that he had been disqualified from becoming a company director for seven years by the UK Insolvency Service in 2000. Such an oversight could cost the club a further £100,000. So when you look at the whole picture there's a very real chance Rangers could be in serious financial disarray later this year; but of course there's also the possibility that, perhaps for the good of Scottish football, for the competition and commercial side of the whole affair that Whyte may well be able to negotiate himself a tax bill he can cover. Over the next month or two Ally McCoist must work very hard with his Rangers team to keep the club together. The farewell to long-standing captain Davie Weir and injuries can't help. Neither has the sale of Nikica Jelavic to Everton. The loss of European football so early this season and a premature exit from the Scottish Cup has also not helped matters. Perhaps the look on McCoist's face when he met Whyte on transfer deadline day says it all. Although the latest tribunal with the HMRC has finished, many weeks will pass before the case reaches its conclusion; something which has the possibility to change the face of Scottish football for many years to come.