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CLUBS SETTLE WITH HMRC TO AVERT MULTI-MILLION POUND INCOME TAX DEMANDS

Author

Sharon Collier

An experienced Chartered Tax Adviser and Trust and Estate Practitioner, Sharon joined ETC Tax in September 2016.

Some of English football’s leading clubs have paid Revenue and Customs (HMRC) officials in order to avoid being hit with large income tax demands relating to how they reward star players.

Several clubs are understood to have reached private settlements with HMRC in recent months due to concerns about its investigations into employee benefit schemes.

A leading British tax expert has described how clubs were fearful of potentially dramatic consequences of a Supreme Court case later this month into the circumstances which led to the liquidation of Glasgow Rangers in 2012.

Rangers’ administrators are attempting to overturn a Scottish court ruling which determined that loans provided to star players from set up by the club were disguised salary payments on which income tax should have been due.

Andy Wood, a director of the Enterprise Tax Consultants, said many clubs in the Premier League and Championship were now fearful that a ruling in favour of HMRC would see them also receive large income demands because of their own use of EBTs.

He revealed that he had personally been involved in helping one club reach a six-figure agreement with HMRC in relation to the affairs of one senior official and was aware of “five or six” other such deals being struck.

Mr Wood added that HMRC’s pursuit of what it regarded as the abuse of EBTs could see some of football’s biggest names even facing bankruptcy as a result of big tax demands.

“The Rangers case has become known as ‘the big tax case’ and that’s not really an exaggeration because the issues involved have left many other clubs very worried about what the outcome might mean for them.

“They’re not only concerned about the possible impact on their ability to attract, retain and reward the very best talent that they can but the prospect of HMRC demanding large amounts in tax.

“In addition to the cases that I am aware of in which clubs have made payment, I know of further instances in which clubs have received tax demands after disclosing their own use of EBTs.

“Although most of the immediate financial burden rests with clubs which have put these schemes in place, players who have taken loans from the trusts may not be spared as an imminent change in the law would require them to pay tax on monies not repaid by 2019.

“Being asked to stump up large sums may come as a shock for players, especially those in retirement who do not have the earning capacity which they once might have had. Some might even be forced into bankruptcy if they can’t meet those demands.”

Mr Wood explained how EBTs had allowed companies to transfer sums to the Trusts which could then be taken as loans by employees. The amounts involved would be deducted from any Corporation Tax liabilities which the firms might face and staff would not have to pay tax on the loans.

However, he added that HMRC had become increasingly concerned about Trusts simply being used to remunerate employees while avoiding income or ‘Pay As You Earn’ (PAYE) tax.

It discouraged the setting up of new EBTs by introducing new rules in December 2010 which treated the loans made by them as taxable income.

In addition, new measures which form part of the draft Finance Bill mean that individuals who have received but not repaid loans by April 2019 will have to pay income tax on the outstanding amounts. The Bill is expected to be given Royal Assent during the summer.

A challenge to HMRC’s pursuit of income tax from Rangers on payments which it made to EBTs is due to be heard at the Supreme Court in London on March the 15th and 16th.

Administrators dealing with the aftermath of the club’s liquidation in 2012 claim that HMRC was wrong to demand PAYE on the amounts transferred to the Benefit Trusts.

That position was supported by two tax tribunals in 2012 and 2014 but overturned by three judges sitting at the Scottish Court of Sessions in March last year.

Mr Wood said that a ruling in HMRC’s favour was likely to be followed with a succession of “aggressive” tax demands in the form of Accelerated Payment Notices (APNs).

He added that they would create fresh headaches for clubs aiming to be successful by recruiting some of sport’s biggest names.

“With a Supreme Court judgement in its favour, I feel the Revenue would be emboldened and begin issuing APNs to those clubs which it believes owe tax from their use of EBTs fairly soon afterwards.

“It’s important to remember that there is not necessarily a cap on the sums which can be sought via an APN. The demands would be for outstanding tax and interest and clubs would have 90 days within which to either contest the APNs or pay up.

“This is a significant complication for clubs which are constantly in a race to recruit individuals who they reckon can help them win trophies.

“I have been in discussions with a number of football, Rugby Union and Rugby League clubs regarding their remuneration schemes. They are now all too aware about how the process entails keeping both star players and the taxman happy.”

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