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Kicking Footballers' Tax Investigations into Touch

David Anderson, solicitor and chartered tax adviser, explains how to deal with HMRC investigations into the tax affairs of footballers. He explains matters every footballer, club and agent should be aware of if they are contacted by the taxman enquiring into their affairs.

Please note that tax investigation work is a complex area and you should not rely on this article without professional advice on the facts of your case.

Since the introduction of the 50% income tax rate in the UK, English clubs have found greater difficulties in retaining the services of their best players. It has also proved difficult to attract the more coveted foreign players to England. In the other principal leagues in Europe players are often taxed more lightly meaning that clubs can get away with paying lower wages whilst the net position of the player is still improved. The best example is for players moving to Spain, who are generally able to take advantage of a favourable regime for foreign ‘executives’ to pay tax at only 24%.

This has meant that to attract the best footballers from around the world, in order to avoid paying higher salaries, English clubs have agreed to more creative structures being implemented to reduce the overall tax exposure of the individual players and protect their net position.

Often such structures, which have been highly publicised, will involve the use of personal service companies and the exploitation of the player’s ‘image rights’. This works by the club playing a salary to the player and a royalty payment to their personal company. The individuals can then extract funds personally by way of loans from their company resulting in much lower income tax payments.

It is becoming likelier that these structures, and other arrangements set up for the benefit of footballers, will be challenged by HMRC. In 2009, HMRC set up a new High Net Worth Unit. The official aim of this unit was to improve communication between HMRC and the top earners in the UK. In reality, it has resulted in a substantial increase in tax investigations into the UK’s most wealthy individuals. Footballers not only in The Premier League, but also in The Championship will fall within this category and are most certainly a target for HMRC.

As footballers are employees of the football club, it is often the club which will be contacted in the first instance to ensure they have been deducting the correct amount of income tax under the PAYE system. However, it is also likely that the individuals or their image rights companies will be contacted directly. In our experience, investigations generally begin with an informal approach from HMRC seeking to ‘clarify’ certain parts of your tax return. It is absolutely essential that the position is considered carefully at this stage. In all cases, individuals need to be seen to be compliant with HMRC but it is also vital that nothing is disclosed unnecessarily which might be incriminating. In the vast majority of cases, the matter will proceed to a more formal stage following the reply to the informal enquiries.

Professional advice should be sought at the outset from experts who have significant experience in dealing with HMRC’s tax investigations. In general you will need to prepare yourself for a long running procedure, although there will be scope to negotiate with HMRC throughout and agree to an acceptable figure being paid in full and final settlement of their claim. The best options for you will require careful analysis into the strength of HMRC’s case and the potential exposure.

The Tax Litigation department at Sykes Anderson is available to assist at all stages of a HMRC tax investigation. For more details please contact David Anderson.

January 2012

David Anderson
Solicitor and Chartered Tax Adviser
Sykes Anderson LLP