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PCC rejects Rooney ‘tax dodge’ complaint

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24th Aug 2011
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The Press Complaints Commission (PCC) has rejected Wayne Rooney’s claims that a Sunday Times article on footballers' tax avoidance was inaccurate.

In January the paper ran the headline: "Top footballers dodge millions in income tax: Rooney pays 2% on some earnings".

The article claimed that Rooney had saved almost £600,000 by receiving £1.6m from Manchester United in loans rather than taxable income over two-years.

Rooney had argued the headline was inaccurate and misleading because the loans were subject to corporation tax of 28%; were paid back the following year; and it was impossible for anyone to pay 2% tax on their earnings.

Following the PCC judgement last week, KinsellaTax Investigations published an article explaining that current tax laws entitle football players to receive a loan from their club through a limited company – meaning they pay just 28% in corporation taxes, rather than 50% in income tax.

The Sunday Times successfully defended itself by arguing that “current legislation classified such personal loans offered by limited companies (which was a perfectly legal tax mitigation device) as a benefit in kind, thus incurring a rate of only 2 per cent on the total sum of the loan”.

Image rights

With the introduction of the 50% rate, a number of footballers launched their own companies to take image rights payments. The loophole involves players signing two contracts with their clubs - a player’s contract and another contract for the royalties paid from merchandising and image rights. The latter is then paid into a separate company which is only liable to pay 28% CT.

Players are also able to take loans from their companies and pay just 2% tax on the sum, regarded as a “benefit in kind”.

It must then be paid back to the club within nine months after the end of the year it was received. If not, they will be liable to pay an additional 25% in corporation tax on the outstanding sum borrowed.

Earlier this year Rebecca Benneyworth explained the Rooney image rights issue as an example of an easy tax avoidance stunt:

“Get most of your earnings (sorry, payments for image rights) paid into a company then just borrow the money out again. Hey presto – that’s how you get a tax bill of 2%. That bit was a fib though, as the company will, of course have paid corporation tax on the profits – and probably at 28% in Wayne Rooney’s case. The 2% is a 50% tax charge on the benefit in kind on the loan at about 4% official interest rate.”

HMRC is looking at directors' loans from players' companies and is well aware of attempts to use image rights and other schemes to avoid the 50% rate of tax.

Kevin Kinsella, of KinsellaTax Investigations, said: “Although tax avoidance is the legal structuring of tax affairs, if HMRC come across tax avoidance schemes they will work at shutting them down and re-claiming any tax lost to them.

“Code of Practice 8 investigations look into accusations of tax avoidance with the view to claw back any tax lost to the exchequer. If you have entered into a Tax Avoidance scheme or received advice to take advantage of a Tax Avoidance Scheme, you should seek help immediately” Kinsella added.

Rebecca Benneyworth also previously noted that if enough noise is made about wealthy footballers avoiding tax somebody in Whitehall will have to be “seen to be doing something about it”.

The PPC & headlines

The PPC also acknowledged the Sunday Times headline required further explanation and concluded that this explanation was covered in the article. It later clarified that the arrangement was legal, had already been subject to corporation tax, and was likely to be repaid.

Stephen Abell, director of the PCC, said: "This was a complicated financial arrangement and it was important for the commission to consider the circumstances in full.

“The commission's case law consistently makes clear that headlines - which are by their nature reductive - need to be read alongside the accompanying article.”

The PPC judgement states:

Headlines are often the subject of complaints to the commission under the terms of clause 1 (accuracy) of the code, which states that newspapers must take care not to publish inaccurate, misleading or distorted information.

The commission recognises that headlines are, by their nature, reductive, attempting to summarise complex issues succinctly, and must be read along with the accompanying articles. However, it has in the past ruled that too great a disparity between the headline and the text of the article can raise a breach of the code.

The commission did not consider that there was such a disparity on this occasion. It was accepted that the complainant employed, legally, a complicated system by which he paid 2% tax on loans from his own company. In that context, the reference to him paying "2% on some earnings" was not, in the commission's view, inaccurate, even if it was not the full position.

The headline clearly required further explanation which the commission considered was contained in the articles themselves. These made clear that, by this arrangement, the money, which had already been subject to corporation tax at 28%, was a "director's loan", in respect of which tax was paid, and it was likely that the loan would have to be repaid. They also made clear that the arrangement was legal.

Taking this into account, the commission believed that readers of the coverage as a whole would not be misled as to the specific structure of the tax arrangements of the complainant. In the circumstances, the commission ruled that clause one (accuracy) of the code had not been breached.

However, the commission did note that the complainant had made clear that the loans in question had been repaid, and that the requisite tax had been paid on them.

It felt that readers should be made aware of this and noted that the newspaper was willing to publish a clarification, stating that it accepted the complainant's assurance that he "pays all his taxes at the full legally required rates". This was a sensible, and proportionate, response to the complaint, and there were no further issues to pursue under clause 2 of the code.

Further reading:

Replies (15)

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By RogerMT
26th Aug 2011 10:38

Hair today, gone tomorrow..

Like the hair on his head, Rooney's tax affairs are no doubt designed to (legally) hide the bare truth of his earnings!

Joking apart, I can sympathise with Rooney, as at some point the money has to be extracted from the company at which point he will have to pay dividend tax at the marginal rate or CGT if the co is wound up, so there's no way his eventual tax bill would be as low as 2%, but Joe Public reading that article may well have surmised as much.

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By Nick Graves
26th Aug 2011 11:10

Which is worse?

public contempt for the super-rich using EFRBS-type schemes to pay lower rates than Joe PAYE ever could, or the Gutter Press (no doubt also employing such schemes!) exaggerating it, whipping up Joe's support for the sort of knee-jerk HMRC guff we have to endure, which only actually makes tax more taxing on TC Mits and his long-suffering accountant?

Funnily enough, it's always business as usual for Gutter Press (Cayman) Ltd & Rooney (IoM) Ltd. And the senior members of HMRC using service companies...

 

 

 

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By vowlesj
26th Aug 2011 11:21

avoidance or not

I think that most people will want to minimise the amount of tax they pay...and if they can do that (and I can help them!) within the rules then good luck to them.  And in response to your point that Rooney's tax affairs are designed to hide the truth ... well the truth is loans are not income - so there is no hiding!

And if Mr Rooney would like some help in clearing up his loans then I can help him do that without a 50% tax charge.

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By The Black Knight
26th Aug 2011 11:45

55.44% Surely ?

I agree unless there is a winding up and CGT applies then the rate of tax must me 42.5% plus another 2% for delaying it. Ignoring class1A

£100,000 less corporation tax of £28,000 leaves £72,000 for loan or distribution to be repaid by £80,000 gross dividend taxed at 42.5% less 10% =£26,000

loan of £72,000 *4%* 50% = £1,440

Tax paid = £1,440 +28,000+26,000 =£55,440

Am I right ?

Presumably the saving is in the Ers NIC for the club ?

Does Rooney actually pay more tax this way than he would as an employee ?

Now I think I am missing something ?

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By RogerMT
26th Aug 2011 12:12

Hiding

Blimey, us accountants are such pedants! I said "hide", qualifying it with a bracketed "legally", because otherwise my admittedly obvious joke would not have worked!

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By vowlesj
26th Aug 2011 12:31

sorry guv

Sorry Roger...didn't mean to be pejorative just wanted to make my point!

And to Kalden ... ummm. pretty much yes, but only if you don't do any tax planning!   The but is you can probably get the money out on an ongoing basis at around 15% cost, including corporation tax and income tax/nic.

 

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By Simon Sweetman
26th Aug 2011 14:04

Bit of pedantry here -

1    the image rights ploy goes back a lot further than 50% tax rates - we were writing about it three or four years ago and it's older than that - originally I suspect with non-domiciled players and offshore companies

2    If Nick Graves knows of senior members of HMRC using service companies he should name them and they should be hounded out !

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Replying to markallen01:
By Nick Graves
31st Aug 2011 14:17

They should be

oldersimon wrote:

Bit of pedantry here -

1    the image rights ploy goes back a lot further than 50% tax rates - we were writing about it three or four years ago and it's older than that - originally I suspect with non-domiciled players and offshore companies

2    If Nick Graves knows of senior members of HMRC using service companies he should name them and they should be hounded out !

I'm sure it was here or in one of the trade publications only recently, it was reported that not only IT contractors to HMRC but also other senior advisors were using the service companies they otherwise claim are so crooked! I should have save the article, but I was so much in disbelief I simply believed it.

 

 

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Replying to alistair_king:
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By The Black Knight
01st Sep 2011 11:00

No surprise there

 

[/quote]

"I'm sure it was here or in one of the trade publications only recently, it was reported that not only IT contractors to HMRC but also other senior advisors were using the service companies they otherwise claim are so crooked! I should have save the article, but I was so much in disbelief I simply believed it."

 

 

Government departments are big users of Umbrella companies , the MOD (or what ever it's called now is an example too)

Did you really expect joined up thinking ?

 

 

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Replying to Richard Messik:
By Nick Graves
01st Sep 2011 14:23

Do as I command; not as I do

kalden wrote:

 

"I'm sure it was here or in one of the trade publications only recently, it was reported that not only IT contractors to HMRC but also other senior advisors were using the service companies they otherwise claim are so crooked! I should have save the article, but I was so much in disbelief I simply believed it."

 

 

Government departments are big users of Umbrella companies , the MOD (or what ever it's called now is an example too)

Did you really expect joined up thinking ?

 

 

[/quote]

 

You are clearly a very kind person, merely presuming stupidity, whereas I presumed malice aforethought.

Bit like Gov't limos & P11D reporting; I expect the apparatchiks are a 'special case' and are permitted umbrella companies whereas you and I are not... 

 

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By The Black Knight
26th Aug 2011 14:11

Planning ?

You mean EBTs and EFRBSs yes ?

I had assumed he had not used these as article did not refer to them. But as usual perhaps the relevant bits of information are missing from the press article.

 

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By SimonP
26th Aug 2011 14:15

You are all missing the point.

Did Rooney make the claim because he was only able to read the headline, being that it was in BIG BLACK LETTERS and was NOT JOINED UP writing?

 

I should love to know where I can lodge a complaint against this foul-mouthed lout.

 

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By The Black Knight
26th Aug 2011 14:27

foul-mouthed louts

Do seem to be highly valued in our society though, perhaps because they sell news !

 

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By mikewhit
31st Aug 2011 13:55

Top shot

Time for Mrs. Rooney to move to Monaco ...

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By The Black Knight
01st Sep 2011 14:50

mmm

Shame a civil action could not be brought on behalf of (the taxpayers).

be interesting to see some tax experts argueing for instead of defending.

probably why we are all still subjects and not citizens ?

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