Footballers using ‘perfectly honest’ tax schemes

(and that takes some doing)

on about £800k a year plus damages

IF G Taylor, chief executive of the Professional Footballers' Union (PFA), is sure that the millionaire players use "perfectly honest schemes" THEN t/he/y have nothing to fear from HMRC which was given £900m last year by the Treasury to clamp down on tax evasion.

Of course, if the "Treasury ... clamp down" does produce several extra million pounds of tax take, then I'd be delighted if that 'fiscal horror' - in CIOT's words - of IR35 could be modified by introducing a fixed monetary costs allowance for low revenue workers by adding some simple new words to SI 2000/727 section 7 (1) step one, i.e. by an easy Parliamentary change to secondary legislation.

There are two conflicting issues here that are rarely reported fairly by the mainstream media:

Loads of people evade their taxes - ie: break the law and do not pay all the tax that is legally due on their income.  I am sure that plenty of the critics of the rich who pay for tax schemes think nothing of fiddling their taxes (or expenses - which amounts to the same thing as it creates additional income that should have been taxed).

The big difference is that the promoters of most tax avoidance schemes generally try to stick WITHIN the letter of the law. Those who fiddle their taxes, eg: by failing to declare all of their taxable income or claiming deductions for non-business expenses are clearly breaking the law and evading their taxes. The complaint therefore is really that some people can afford to PAY for advice to get around the law - as with those philanderers who secure super-injunctions to cover up their infidelities. The "perfectly honest" schemes referenced in this article have been 'blessed' by a Counsel's opinion that says that the scheme is lawful however much HMRC may not like it. No one (well maybe hardly anyone) pays money for a tax scheme that they know to be illegal.   Mark

ps: I am no fan or defender of tax schemes. One of the reasons I stopped giving tax advice was my discomfort with such schemes.

Would anyone who has the talent to become a footballer and earn the money they do not take that opportunity. You cannot really blame the footballer for the way that society chooses to organise itself to reward different professions. Then having acquired the money who would not investigate ways of keeping as much as is legally possible.

I only hope that some of them appreciate the their position in society and choose to re-distribute some of their wealth to the more needy or at least give some time and effort to good causes.

You can only hope.   

While I fall on the side of plummy1 (ie. if its within the law, it fine) I often ask the question of why are footballers picked out in this arguement time and time again.

Whilst there are some individuals on substantially more than the average top flight footballers wage, even they are earning significantly less than formula 1 drivers of golfers at the same height of their profession.

Is it perhaps that the amount of footballers earning £50k+ per week by far outnumbers the amount of golfers or F1 drivers earning this amount and therefore is a more abundant source of revenue for Treasury? No doubt numerous footballers are using the same sorts of means for reducing their tax bills - get one, get them all maybe?

I recall some years ago Andrew Hubbard in a CIOT lecture saying that, in the eyes of the Treasury, large scale tax avoidance was worse than low level tax evasion. Clearly it is worse in terms of tax lost but Andrew indicated that the Treasury seemed to think it worse in moral terms. Thus it would appear that the Treasury sees it as evil not to pay tax regardless of reason - perhaps not wholly surprising!

you really should kmow better ;-)

how many times do counsel get it wrong? 50%

its too easy to get consel to legitimise a scheme that one knows is fundamentally wrong

other than that i agree wholeheartedly re tax pinching

@Carnmores - is the 50% you quote above an actual figure?  Just curious, nothing more

The thing about golfers or F1 drivers is that they can easily relocate their 'residence' to a tax haven, as Lewis Hamilton did when he moved to Switzerland. Thereafter, their earnings are taxed at a much lower rate (or zero, depending upon your tax haven).

This was exactly why HMRC instituted the rule that intangibles such as sponsorship and image rights for sportsmen should be taxed as well as any income when they compete in events such as Wimbledon under the so-called 'Agassi rule'.

There are consequences of this, obviously, such as the refusal of Usain Bolt to appear at last years Crystal Palace event:

http://news.bbc.co.uk/sport2/hi/athletics/8812123.stm

The reason why footballers are perhaps unfairly targetted in this way is that their job forces them to be resident in the UK for more than 183 days per year and therefore the only way they can avoid the tax is by taking complex avoidance schemes such as placing image rights in a special purpose vehicle or alternately transferring to a foreign club in a country with an easier tax regime.

the image rights tax problem by a simple alteration to the FEU rules to include off shore rights holder companies whoever they allegedly belong too c re Agassi above - whats all this about being forced to be here tut tut

This is not my area of expertise, so I'm happy for you to tell me that I'm a gibbering idiot, but couldn't you effectively block that approach by having a trust as the ultimate beneficial owner?

Well when they go to court there is always one winner and one loser.

Equally, we all know that evasion is illegal and avoidance is legal, but tax authorities the world over seem to be bending over themselves in a bid to blur or even shatter the line between the two, especially with such vague terms as "aggressive tax avoidance". Ultimately, we still live in a country governed by laws and if HMRC wants to determine that activities not previously identified in law as evasion ARE evasion and not avoidance, the only place to do this is in a court of law.

Each one of us has to apply their own morals to what avoidance strategies they are happy to put to their clients. For myself, if a client wishes to take up a 'tax avoidance scheme' like the Isle of Man EBT's (which were rightly found to be evasion, not avoidance), then if they choose to go down that path against my detailed advice not to then we will be parting as client and agent.

As well as the legal aspect of dealing with tax, there are also ethical or perhaps more strictly moral aspects. The social contract that exists between the state and the governed is founded on the principle of equal treatment. Nothing causes the rage to burn quite so much as those who live in the UK and earn a great deal of money here, but don't want to pay the tax on their earnings. If tax was at extortionate levels, they might have a point, but in truth even the highest earners pay about the same tax in the UK (often a lot less) as they would pay in most modern European countries.

It should be remembered that part of the social contract is that people are always free to leave. Rather than these complex avoidance schemes, maybe we should just tell them - either pay your tax or leave the UK. I doubt if that many of (for example) the Manchester United players would seriously up sticks and move abroad - or if they did I bet they'd be back in a flash.

Perhaps we should remember the words of a former Chancellor of the Exchequer on the difference.   

"The difference between tax avoidance and tax evasion is the thickness of a prison wall."
  - Denis Healey

he is not competing at Queens next year partly becasue he could end up staying in the UK for a month and the FEU will want to tax 1/12 of his sponsorship income - how come the Olympians are getting a dispensation - so i think the question of a trust is immaterial - the problem with image rights holding companies is that they are not owned by the person concerned (FA step upto the plate) and money is only borrowed from the vehicle , yea right

and one other thing the social contract surely exist between the citizens and the state not the state and the government

For as long as I have been involved in tax (I qualified in 1981 by the way!) people have complained about others taking advantage of tax loopholes and opportunities. I seem to recall Gordon Brown even complained that small companies were taking advantage of the £10,000 nil Corporation Tax band as if all small company owners were somehow crooks!

There has always been a simple answer - tax is just law, if we don't like the current law we just have to change it! It's not rocket science.

Yet for reasons best known to themselves, successive Governments have been unwilling to stamp out some of the most blatant abuses of tax law - presumably they are happy to live with them for economic or political reasons.

As for counsel's opinion - this only gets tested when one of these tax schemes comes to Court. Which is not very often - so I suspect HMRC's legal team share the same opinion in most of these cases. In that case 'Counsel' has a far greater success rate than 50%!

I would actually go further and say that 'counsel' has succeeded if it gets a settlement without going to court. I'm guessing that the vast majority of cases are settled out of court due to the strength of the prosecution or the weakness of the defence (or the consequences of losing).

Indeed time after time we have seen that a win in court can be somewhat of a Pyrrhic victory in that the benefit of success is often outweighed by the time, effort, stress, distraction from business, etc. than an out of court settlement would be - even if you believe you are in the right, it is sometimes not worth the fight.

... the football clubs themselves, with their non-payment of PAYE and small local 'non-football' creditors.

of 2 halves...............

Avoidance is legal, evasion is not - simples!

I will use and defend any legal means of avoidance. The issue here is that the tax code is too wooly (and deliberatley so) to provide HMRC the FUD - fear, uncertainty and doubt - to intimidate taxpayers. This is how it has always been. Let us not forget that the Accountancy and Legal professions have a vested interest here too!

If the tax code is simplified, the need for and ability of said professionals to create avoidance schemes is minimised.

The taxation of endorsement income for sportspeople is a different issue & Rafa is the only the latest in a long line of sports stars who now carefuly select the events they enter in the UK because of the way HMRC seek to calculate their income post the Agassi case.

The Olympics is different as the IOC, along with most other major event holders, include in their bidding documentation that athletes and the event holder will not be liable to tax on earnings during the event, or if they are, the bidder will pick up the tax, meaning it becomes a cost of hosting the event, which is why the legislation was needed on this.  Provisions were also made last year for the Champions League final which will have to be made again in 2013 when Wembley host it again.

Lobbying of HMRC & the Treasury is currently happening to get them to look at this issue as events such as Wimbledon, The Open golf etc see the current rules as discouraging participation and is therefore likely to harm the brand value of their event.  It is ilkely that the potential tax which is at stake will be less than the economic benefit of hosting events, but I suspect that it may take more than that to persuade HMRC & Treasury to change their approach.

FEU is another issue of course - but i believe it would be easier to tweak these rules to bring the image rights loans ( as offshore entitlelements in reality) rather than try and other routes.

have been doing FEU submissions for eons

i am aware of the other points tho in the case of the Olympics the gov is effectively picking up the tab -  will the FEU actually calculate a figure

same sort of nonsense with ECL - its preposterous that some should be taxed on their worldwide income (Rafa) while others (Usain) do not even get taxed on their UK earnings

There is no difference to the way that Nadal and Bolt are taxed in the UK given that they are both classed as "visiting performers" as per s13 ITTOIA 2005. Prize money or appearance money is taxed (money directly earned in the UK) and that proportion of their endorsement income (money not directly earned in the UK) that can said to be earned while in the UK, whether this is paid to them directly or to an image rights company they may have, is also included.

Given that the courts have already accepted the principle of image rights then it merely comes down to the value is attributed between the image right payment and the salary payment.

Rafa will pay tax - Usain wont as it is covered by the 'olympic exemption' - the point about image rights pertains to UK resident footballers who are not paying tax thro use of offshore companies that they do not own or control but thro whom they are lent vast sums of money - what i was sugesting is that they use some of the FE devices to properly tax the image right income

While Bolt will be exempt from tax from 30 March to 8 November 2012, HMRC have confirmed that appearances made during this period have to have a specific link to the Olympic Games, otherwise the exemption will not apply.  This could mean that he and other athletes might be taxed on community or promotional work on behalf of their sponsors unless this link can be established.  Given the tight restriction that the IOC has over the association to the Olympic brand on relation to businesses who are not part of the Olympic sponsorship programme, it is likely that athletes may find themselves outside the exemption.

On the image rights point, if sums are being lent to people whom have no connection to the company, then surely you must be looking at whether the directors are then performing their fiduciary duites in sanctioning these loans?

so lets shift to the Chmpions League - the players are exempt from FEU , is that correct or is someone else picking up the tax tab. if they are not why should his differentiation of approach be allowed to continue

Wembley decided to bid to host the Champions League (CL) Final in 2010 and a pre-condition of UEFA's bidding process was that players & officials of overseas teams should not be liable to tax as a result of being in the host country for the final.

The FA approached the Government to ask for guarantees that this condition could be met.  The Government did not give the FA the guarantee and the FA decided it was not willing to "pick up the tab".  Therefore, UEFA awarded the final to Madrid and it was widely reported at the time that tax was the reason why Wembley has been overlooked.

Meanwhile, the FA continued to lobby the Government and were ulimately successful which resulted in UEFA awarding the CL 2011 final to Wembley and legislation was included in FA 2010 (Sch20) setting out the tax exemption.  It is presumed similar legislation will have to be in place for the 2013 CL final which again will be held at Wembley.

When the announcement was made confirming the CL exemption, other sports, quite rightly in my opinion, asked why football was benefitting and their sports were not?

Treasury seems not to grasp the benefits major sporting events bring to the country in economic terms and HMRC have admitted that they do not know the annual tax take from overseas sports people, though Saffery Champness estimate it to be in the region of £7m.  If a major event left the UK the loss in tax terms would be considerably more than this.  Therefore, should it not be the case that endorsement income be excluded from the current rules across the board?

We are in the "Golden Decade of Sport" in this country (ATP World Tour Finals 2009-12; Ryder Cup 2010, 2014; Heineken Cup Final 2011, 2102; CL Final 2011,2013; Olympic Games 2012; Rugby League World Cup 2013; Commonwealth Games 2014; Rugby World Cup 2015; Cricket World Cup 2019; and possibly World Athletic Championships 2017) and if we are to ensure we remain able to host such events and ensure our own annual events continue to be able to attract world class performers, then the current policy will have to be amended.