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Footballers avoiding tax? No surprise there!

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17th Jan 2011
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Deep in the self assessment season, when most news stories other than an earthquake in Stroud would pass me by, I was interested to catch the front of the Sunday Times yesterday. The luxury of reading the newspaper in full awaits me in February (not, of course the January papers by then – what they have to say about the world is lost on me forever) but I did manage to read this story in more detail.

“That’ll be image rights – everyone knows about that” piped up my hubby from in front of the Match of the Day re-run as I headed for the office. Well sometimes I pay attention to football, but more often not unless my son is playing, so I read avidly.

As an example in an easy tax avoidance stunt it was an object lesson. 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 - near enough for a journalist anyway. No mention was made of section 455 of Corporation Tax Act 2010 funnily enough. (That’s Section 419 ICTA to the slow coaches).

All this bodes badly for our section of the world. If enough noise is made about wealthy footballers avoiding tax somebody in Whitehall will have to be “seen to be doing something about it”. While director loans from close companies are unfortunately the stuff of daily life for the smaller firm, any “clampdown” on this area could prove challenging. The Sunday Times suggested that some well known names were under attack to treat the loans as remuneration because there was “no arrangement for the repayment of the loan”. Well that’s a bit of a new one on me – and I wonder how many other members might be concerned at that approach.

I did, in passing, wonder whether the disguised remuneration provisions might attack these payments which would leave little trading companies well out of the picture. I don't have time to read the legislation for the moment - things to do, returns to file, but maybe in February I'll chew it over.

We shall have to await further developments, but I have a nasty feeling that I’m not going to like what comes next.
 

Replies (16)

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By Simon Sweetman
17th Jan 2011 10:51

image rights

Well, I have to say that I have been banging on about this for some time. The added thing, of course, is that very many Premier League footballers will be non-domiciled and their companies/trusts etc will be offshore.  

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By grecianwebb
17th Jan 2011 12:53

Not just footballers

I suspect HMRC are aware of this. Probably also aware of structures so that payments for away matches in Europe for those who are resident but not ordinarily resident or non-UK domiciled fall outside of UK taxation net.

I think similar things have been happening with rugby union teams and cricket teams and I heard a rumour that HMRC were lining up to test a few enquiries out on these 'smaller' fish before going after the millionaires in the Premiership.

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By frustratedwithhmrc
17th Jan 2011 13:12

Footballers seem to fit the Cameron and Osborne profile of "The

However, given that the driver here will be framing legislation so that HMRC and HM Treasury can extract the maximum amount of taxation possible, I suspect that small companies operating as they have done for countless years will also be dragged into this.

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By nkwayne
17th Jan 2011 13:40

Effective tax rate 47.4%

Something not quite right here.  £1m goes into the company, £280k goes in CT.

£720k is loaned to participator - 25% of that goes off in S419 (ooeerrrr, I am old), another £180k to tax man

A spit of tax on benefits = £14.4k to tax  man, plus a bit of class 1a?

So in round terms of the £1m paid to the football player, £474.4 has gone to the tax man.  I think thats an effective tax take of 47.4%. 

If I were a tax man, not sure I would be running madly around trying to bung that particular loophole even though as employment income it would generate more, there are probably bigger fish to fry with my limited resources.

And of course our good friend the jounalist is definitely not very close with rounding this down to 2%.  Sigh.  All for lurid headlines.

 

 

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By frustratedwithhmrc
17th Jan 2011 14:05

Sounds like a "Beneficial Crisis" in the making.

What are the chances that HM Treasury and HMRC will ignore the reality of the tax being extracted and use the usual lever for manipulating the politicians ("Something must be done"), to pass additional legislation which tackles the "Image Rights", but in such a generic way that lots of small and medium sized companies are also dragged into the net for following standard practice based upon professional advice for countless years.

For an extra "kick in the teeth", HMRC could get the legislation made retrospective.

Oh the Joy!

 

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Mark Lee headshot 2023
By Mark Lee
17th Jan 2011 14:12

I doubt the footie players own the companies

In which case they wouldn't be participators or 'associated' with participators.

And yes, of course HMRC know about this - as Rebecca said, it's also clear from the report.

Mark

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By blok
17th Jan 2011 14:14

.

You are being generous with the rate comparison.

Company sets up a trust, usually offshore..

Company makes a payment to the trust to benefit the beneficiaries (footballer).

If the company is really agressive it will claim a CT deduction as for the benefit of trade. (cheeky!!)

The trust makes loan to the footballer, therfore no s455 tax

The trust is usually offshore!  Isle of Man for example.

Therfore the 2% quoted is about right.

 

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By indiajack
17th Jan 2011 15:57

Hasn't all this been blocked vis-a-vis IR35?

Hasn't this payment to trust companies offshore and no repayment of loans been caught within the liegislation and practice for IR35 avoidance?

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By frustratedwithhmrc
17th Jan 2011 16:38

IR35 ?

Hasn't this payment to trust companies offshore and no repayment of loans been caught within the liegislation and practice for IR35 avoidance?

Arguably - Yes.

However, HMRC has found it difficult to prosecute under IR35 in the best of circumstances, when the company undertaking the "Contract for Services" was prepared to provide HMRC the necessary evidence.

In this circumstance, HMRC would be faced with an "employer" who would fully support the "employee" to the fullest extent possible (provided they are still playing for the team). Possibly even to the point of collusion. Football clubs were never really ideal examples of accounting integrity, were they?

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By nkwayne
17th Jan 2011 16:41

artifical transactions

What always has and still does bug me, is that I thought anything like this could be challenged on the basis of an artificial series of transactions.  Quite obviously the whole purpose of these image rights companies is to avoid tax, so how come HMRC does not attack them using existing legislation properly.  It seems as indicated above that HMRC are more interested in gathering increasing powers to themselves than in using properly the ones they have got.

I despair sometimes sitting in my little sole practice that my clients who if you put them all together and they all evaded tax together still would not cause much of a blip on the treasury radar still get hustled and hassled by HMRC and treated like criminals for being occasionally slack or slipshod with their interpretations where our rich footballers can get away with deliberately seeking out and paying handsomely to find and exploit purely technical tax loopholes in a way which is blatantly defrauding HMRC!  Thats a long sentence, sorry, but I am sure you know what I mean.

Rant over, back to tax returns... 

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By frustratedwithhmrc
17th Jan 2011 17:37

Have you ever considered that it's not about the tax?

Admittedly, I'm very cynical and old fashioned. Since the introduction of Self Assessment back in the mid-1990's, I've always thought that there was a subtle change in the approach of the Inland Revenue (as was). In the good old days it was a case of bringing in the necessary finances to HM Treasury by ensuring that taxpayers were compliant with the tax code.

More recently and with greater acceleration after the merger with the heavy mob of what was formerly Customs and Excise, it seems that HMRC are primarily concerned with controlling the plebs through heavy handed and deliberate misinterpretation of the tax code. Nowadays, whatever is demanded by HMRC is correct and whatever is collected is never enough.

Fewer taxpayers have the financial, intellectual and emotional resources to challenge the juggernaut of an inquiry by a HMRC Inspector over what are (for the most part), minor errors that would have been dealt with by a stern letter 20-years ago (including a full explanation of the concerns and a clear warning to be more careful in future).

The latest example of this being a tax demand recieved by a client recently which contained no telephone number or other contact details, merely some pithy line about "You don't need to contact us about this matter, simply pay the amount shown at the bottom".

HMRC in 2011 appears to be purely a mechanism for controlling the middle classes and keeping them in their place rather than a tax compliance or revenue raising arm of HM Government.

Oh dear. I appear to have transformed into C_D.

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By mikewhit
17th Jan 2011 18:36

Bit like an MSC ?

Don't you think that those "image rights companies" would fall under the MSC rules, they seem to tick most of the boxes ...

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By workhow
18th Jan 2011 12:00

Footballers images tarnished

Well - relatively tarnished. The choice of a picture of an angry footballer in the process of disgracing football (and, sadly, my team) by furious verbal assault on the referee looks a bit like deliberate graphic demonisation.

OK - a picture of footballers handing flowers to children would have been similarly inappropriate- but perhaps we could have had something less redolent of Stalin's propaganda machine ?

Nonetheless, they do need bringing down a peg (several thousand pegs a week in fact)

 

 

 

 

 

 

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By mikewhit
18th Jan 2011 12:27

Offshore tax rates

What if the rights companies were in offshore tax havens, paying a much reduced CT ?

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By Paul Soper
18th Jan 2011 12:55

Image rights are not services

Neither IR35 nor MSC can be invoked because they are not providing services but allowing others to exploit their "intellectual" property rights (I think the "" is right for most of them) - use of name, copyright in photos, sponsorship deals etc etc.

 

Interesting the revenue had a pop successfully at the use of offshore trust/loan arrangements in a case concerning David O'Leary and Arsenal many years ago - and an unsuccessful try against David Platt and Dennis Bergkamp where their image rights companies had been set up whilst they were playing in the Italian League, and so were part of the arrangments they brought with them to Arsenal.

 

 

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By mikewhit
18th Jan 2011 18:11

Another day, another regulation ...

@Paulsoper:

So, since the MSC stuff was pulled out of a hat to "close a loophole", there would be nothing to prevent them "closing a loophole" and creating "Managed Rights Company" legislation ...

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