Tackling football too hard over tax nets an own goal

IT SEEMS that barely a week goes by at present without a dispute between Premier League football and HMRC. High-profile stories have included HMRC sending detailed questionnaires to all Premier League clubs on employment tax compliance, Manchester United, Chelsea and Newcastle United settling outstanding image-rights liabilities, the ongoing football creditor case at the High Court and the cases involving Glasgow Rangers and Harry Redknapp.

What is often overlooked is football’s gargantuan contribution to the economy: we calculate that the Exchequer is likely to receive over £1bn from Premier League clubs for the first time this season. Yet despite the Exchequer’s unprecedented annual windfall, the level of scrutiny around the tax affairs of football clubs and players remains higher than ever before.

The Redknapp case in particular appeared to raise a number of questions about the use of public resources. The evidence centred on a payment into a Monaco bank account, but it transpired there was no actual evidence that tax evasion was involved. Furthermore, the amount of tax due on the payments would have been less than £100,000, but HMRC spent an estimated £8m pursuing the case.

The ongoing football creditor case, where HMRC is challenging the legality of football creditors being protected in full during football club administrations in England, while other creditors (including HMRC) will typically receive a “pence in the pound” settlement, is a challenge to a longstanding source of frustration to the Revenue. As a result of losing tens of millions of pounds on club administrations since the introduction of this rule, HMRC is getting tough at every opportunity.

The employer compliance review was triggered by the view that players were often receiving benefits such as holidays paid for by the clubs and not reported on the players’ P11D forms. In our experience however, clubs’ tax compliance systems have become much more sophisticated in recent years, ensuring benefits are captured as they arise.

This leads back to image rights contracts, which remain another point of contention for HMRC. Players who have transferred their image rights to a separate company will have an employment contract with the club subject to income tax and a separate image rights contract between the company and the club. The image rights payment is not subject to income tax, but is subject to standard corporation tax. Image rights contracts are a tax-efficient way of structuring a player’s affairs and HMRC has agreed with this in the past. Yet challenges still continue to be made.

The football industry is targeted by HMRC as few other industries are. But clubs are generally run well and tax structures are usually perfectly innocuous. Given the huge tax contribution it makes, perhaps it deserves some slack.

Pete Hackleton is a partner at accountancy firm Saffery Champness.