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  • Result! HMRC overcomes Rangers’ defence in Supreme Court showdown

    5 July 2017

    Andy Wood

    Over the course of the last few months, the affairs of some of football’s biggest clubs and players have found themselves forced onto the back foot by one of the game’s most difficult opponents: the taxman.

    Once again, soccer’s finances have been scrutinised by those who believe that it’s not paying its fair share of the billions generated from ticket revenue, merchandising and television rights money.

    Whilst headlines were generated by cases in Spain involving Lionel Messi, his Barçelona team-mate Neymar  and great rival at Real Madrid, Cristiano Ronaldo, another considerable matter was rumbling along closer to home.

    Regular readers of this ‘blog may recall how, in March, I gave my thoughts on the Supreme Court showdown involving the administrators of the ‘oldco’ Glasgow Rangers which was forced out of business in 2012 and HMRC.

    The case hinged on whether the club’s use of Employee Benefit Trusts (or EBTS, for short) was legitimate or an attempt to sidestep likely payments of Income Tax and National Insurance.

    As I remarked at the time, the stakes were high with the potential ramifications stretching far beyond this singular and very long-running dispute – one which had been dubbed ‘the Big Case’ by Scots familiar with the seven-year saga.

    I even detailed how a number of clubs had sought to make settlement with HMRC to avoid what might happen if its argument prevailed.

    Now that judgement in HMRC’s favour has been handed down, I have no doubt that those who had not come to such an arrangement will be understandably anxious.

    As I’ve been telling Sky Sports News  and other media, the Revenue will now be able to issue what are known as ‘Follower Notices’ to those clubs which also used EBTs, demanding Income Tax without the need to embark on a further series of legal actions.

    Of course, the Rangers ruling is just one part of a much broader UK sweep of football by the tax authorities which, although not involving such star names or severe penalties as seen in Spain, could have important consequences for the greats of the domestic game.

    In fact, the Supreme Court decision coincides with HMRC stepping up efforts to ensure clubs, players and agents comply with the rules.

    Back in January, the House of Commons’ Public Accounts Committee had chided HMRC officials over how regulations relating to image rights were being “exploited”.

    The Revenue responded by announcing a three-year investigation, during which members of a special task force would visit every English Premier League, Championship and Scottish Premier League club to review image rights arrangements.

    It’s a topic which has been a thorn in the taxman’s side since 2000, when a Tax Commission decided that sums paid in lieu of image rights were perfectly acceptable and didn’t amount to an attempt to perform the financial equivalent of a ‘Cruyff turn’, leaving the Revenue trailing in the wake of a nippy – and wealthy – footballer.

    Ever since, HMRC has only been able to argue about whether the size of image rights payments is justified by an individual’s profile and ability to help shift club merchandise.

    After a series of skirmishes, clubs and the Revenue came to what has been described as ‘a gentleman’s agreement’ concerning what practices were acceptable.

    Having sustained a parliamentary pummelling, though, HMRC is not only stepping up its efforts but looking to move the goalposts – if you pardon the footballing pun – entirely. Provisions have been promised in the Finance Bill trailed in the Queen’s Speech in June targeting alleged image rights abuses.

    Even with the kudos of a significant judgement under its belt, HMRC is clearly not going to have things its own way, as the imminent judicial review of a raid on Newcastle United in April shows.

    A little rough and tumble is common to both footballers and the taxman. Both are also in the results business. Whether differences are settled in the Supreme Court – the judicial equivalent of extra-time – or by changing the rules of the game when both teams are already playing (as HMRC seeks now to do), no-one can be sure of the outcome.

    However, to use one well-oiled football cliché, “at the end of the day”, it’s how their contest is perceived which is as important as the sums involved.

    If you or your clients have any concerns about EBTs or other arrangements then please do get in touch