Portsmouth beats HMRC in court
Portsmouth Football Club won its most important match of the season without kicking a ball as Mr Justice Mann found in its favour in HMRC’s challenge to the club’s company voluntary agreement (CVA).
The tax department argued that the club owed more than £37m in back taxes – some £13m more than the £24m allowed for its claim in the CVA put together by UHY Hacker Young administrator Andrew Andronikou.
Contrary to previous claims of up to 65p in the pound being returned to creditors, the deal put together in June promised 20p in the pound for the club's unsecured creditors over four years. HMRC put forward the additional claim for £13m based on payments made into offshore accounts to players for image rights.
The image payments were “a sham”, HMRC’s counsel Gregory Mitchell QC told the court on Tuesday. “There was no commercial basis... PAYE should have been paid.”
HMRC also put forward its arguments against the Football Creditors Rule which, Mitchell said, lets one class of creditor scoop the pool “and the rest are left out in the cold”.
Because the club’s football creditors enjoyed preferred status under the CVA, they should have been allowed to vote on it, he added.
But Mr Justice Mann was not convinced by any of HMRC’s lines of argument. Since the Exchequer stood to lose £6m under the CVA if HMRC won its challenge, the judge commented: “In my view, HMRC will not be worse off by the situation left by the CVA bearing in mind what the alternatives could be for the club… liquidation, or expulsion from the Football League or worse.”
Further reading
Portsmouth FC slides into administration
Portsmouth case brings football down to earth
Tax and football: PAYE and NIC by Simon Sweetman
Football clubs under threat from HMRC
Money Laundering and Crime discussion group
Continued...
The full article is available to registered AccountingWEB members only. To read the rest of this article you’ll need to login or register.
Registration is FREE and allows you to view all content, ask questions, comment and much more.
Or if you are already registered, login here
Portsmouth wins against HMRC - good in some way.
Why can't parliament amend the law so that "football creditors" do not have preferential treatment?
Cannot understand that this came about for the benefit of "out of touch" overpaid soccer players who with their continuous injunctions try to hide their hedonistic lifestyles dependent on their excessive remuneration, whilst SME's get stung.
HMRC jumping the gun?
HMRC appear to have shot themselves in the foot in this case by claiming an extra £13m in PAYE was due, arising from payments made to offshore accounts for players' image rights. Surely that should have been the subject of a separate enquiry/investigation and not tagged on to the original bill? Had the courts gone in favour of HMRC it would have set a worrying precedent whereby HMRC could effectively amend tax law without the need to run an investigation on a tax payer beforehand!
As HMRC were prepared to lose £6m in order to win the case, the offshore payments issue will not go away, and Portsmouth FC or some other club will probably be used as test case in the near future.