Is my client risking reputational damage?

Is my client risking reputational damage?

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Hi there,

I was wondering if you could help me out and I would be most grateful for any assistance:

I am an advisor to fairly high profile clients, in negotiations with a potential with a view to representation.

I have looked at my clients books and I have some concerns:

My client, a footballer, uses a UK registered company to manage his financial affairs. He is the sole shareholder but "resigned" from the company and has left his mother as a director on a 20k salary.

My client then receives his money (typically 70% of revenue for any given year) as "service fees." – about 2.5m every year.

I would thought he then pays income tax on that. Am I right to assume that by receiving money in “service fees” the company is avoiding corporation tax?

With the current media climate at the moment on avoidance issues, I am keen to get other opinions. Could this be construed as avoidance?

Best,

Daniel

Replies (10)

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By cheekychappy
25th Apr 2015 14:15

How is he taking these service fees from the company?

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By Daniel56
25th Apr 2015 14:38

In single lump-sum payments. Not as dividends.

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By cheekychappy
25th Apr 2015 14:41

If they are not extracting funds via salary or dividend, I presume there is a large debit balance on their DLA?

On the face of it, and a lack of all information, it sounds like tax evasion.

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By Daniel56
25th Apr 2015 14:45

For example "the company

For example "the company incurred service fees for the year from the majority shareholder, Mr X, amounting to £2,514,387 (2013) (2012: £2,523,986). At the year end the company owed Mr X £5m...."

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By Matrix
25th Apr 2015 20:13

Well is he including them in his SA as self-employment income?

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By Daniel56
25th Apr 2015 20:49

Yes, he tells me his including them in his SA as self-employment income.

I assume that is legal, but could it "look bad" in the press?

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By cparker87
26th Apr 2015 00:43

of course it is avoidance

what on earth else do you think he is playing at? If he was not about avoiding tax surely his main source of income would simply be PAYE through the Club. 

 

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By Duhamel
26th Apr 2015 07:04

Sounds a really odd structure
And I don't see what the point of it is, unless I have misunderstood it.

Regarding press, anything other than a 100% paye salary could look bad. If the structure is legitimate then it's justifiable in the press. Not sure this is.

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By buttercup books
26th Apr 2015 11:42

Who is avoiding the tax?

The client is going to be paying tax & NI - even if it is less than it might be

 

but the club, by paying a LTD gross - avoids employers NI

 

if £2,5 m is 70% - his total gross would be around £3.57m

 

the club is saving around £490,000 erni @ 13.8% - and on how many players ??

 

I'd be interested to know, because I don't deal with large "salaries" like this, with possible IR35 implications etc

If the client is forced to take his pay through a LTD - what would his most tax efficient method of extraction be - 

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By Melody
27th Apr 2015 19:06

I would suggest familiarising yourself with HMRC and other guidance on Personal Service Companies (which this apears to be) and IR25. e.g. https://www.gov.uk/ir35-find-out-if-it-applies

Also www.parliament.co.uk/briefing-papers/sn05976.pdf is relevant and relatively recent. 

The more well informed you are the better able you will be either to advise your client to change his arrangements, or to justify them should they become public.

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