2% Villa - Sunday Times report on Tax Avoidance by Premiership Footballers

[Lizz]

One of the headline articles in today's Sunday Times is about how some footballers are using a tax loophole to avoid paying income tax. Wayne Rooney and Gareth Barry are mentioned in the article. There was probably a lot more, but there was only so long I could linger in the newsagent and pretend not to be reading the paper without paying for it. Anyone who subscribes to the ST on line might know more about it.

Think the Times angle was about the greed, and there was a mention that HMRC are looking at closing whatever loophole it is that the players are taking advantage of. 

^{There's probably an extremely vague correlation between me being too mean to pay for the Sunday Times and footballers not wanting to pay income tax.}

[lordmcgrath5]

Sunday Times Article 16 January

------

Dozens of top footballers, including the England players Wayne Rooney and Gareth Barry, are avoiding millions of pounds in tax.

The Premier League footballers are using complex tax avoidance schemes that legally allow them to pay as little as 2% tax on some earnings.

Rooney used a device that enabled him to save nearly £600,000 over the past two years, and the tax liability of Barry, of Manchester City, is £135,000 less than if he had been subject to income tax at 40%. The scale of the tax avoidance in football has become so great that the taxman is investigating how to stop it. HM Revenue & Customs (HMRC) is demanding a payment of £100m from clubs on behalf of their players.

The Sunday Times has found that apart from those players who are able to pay as little as 2%, a further 55 players benefit from a tax saving of 22% by receiving a substantial proportion of their total earnings via an image rights company.

They include Ashley Cole, the England defender and ex-husband of the singer Cheryl Cole; Rio Ferdinand, the England defender; and Michael Owen, the Manchester United striker, whose company Owen Promotions owns 11 racehorses.

Theo Walcott, the England striker, has TJW (Promotions), and David James, the England goalkeeper, has Toocoo.

In the past 18 months, since Alistair Darling announced plans to introduce a 50p top rate of income tax, players have rushed to create firms eligible to take image rights payments. They include Andy Carroll, the Newcastle and England striker, Jack Wilshere of Arsenal, and Darren Fletcher, the Manchester United and Scotland midfielder.

The players can avoid tax by having two contracts with their club — one as a player for which they receive a salary, and the other for their “image rights”, typically for earnings from shirts with their name on or if their picture is used on merchandise. These royalties are usually paid into a company owned by the player, which is liable for corporation tax of just 28%, rather than 50% income tax. HMRC, which has been fighting a running battle with players over image rights, believes some players are exploiting the system by then taking loans from their companies.

Some have taken out more than £1m to top up their salaries. Accountants who advise star players say many have done so since the introduction of the 50p tax rate last year.

The footballers are using a loophole created by Labour, which changed the law in 2007 to allow companies to lend large sums to their directors.

The loans are classed as a benefit in kind rather than direct income, which means that a player pays just 2% of tax on the sum rather than the top rate of 50%, or 40% before last April, if it was part of his regular salary.

The practice is legal, but HMRC is likely to challenge any player who does not have a scheme to pay back his loan.

Companies House filings reveal that England players such as Rooney, Barry and Daniel Sturridge of Chelsea have taken directors’ loans from their private companies.

Rooney, now reported to earn £200,000 a week, has borrowed £1.6m over the past two years from his company. Had he taken the loan as income he would have been liable for 40% income tax, paying £622,802. By using the device of a loan, he needs to pay only £25,511, a saving of £597,291 in tax.

Barry borrowed £372,784 from his company last year. Had this money been treated as income, the player would have had to pay £134,178 more tax. Sturridge and his father Michael have borrowed £312,008 from a private company controlled by the player — saving £111,083 in tax.

Players who have taken loans could choose to pay them back when the 50p rate is lowered, and then take it as a dividend. However, some advisers have told players they can “collapse” their companies at the end of their careers and end up avoiding the income tax charge altogether.

Peter Fairchild, a partner at the accountants Begbies Traynor who advises many top sportsmen, said: “In tax terms taking a director’s loan from an image rights company is very, very efficient.

“If the player wants to put £100,000 in his hand, he can do so and only pay around £2,000 of tax. Consequently, a lot of players have followed this advice.”

HMRC has often challenged the amount of a player’s income attributed to image rights, but it lost a test case in 2000 after claiming that two Arsenal players, Dennis Bergkamp and David Platt, were trying to avoid tax by paying income from their image rights into offshore companies. The players successfully argued that the money was for their pension funds.

Manchester United last year disclosed that it was embroiled in a dispute over £5.3m concerning image rights to its players.

HMRC is negotiating a payment of £100m from the clubs to make good tax owing because they overstated the proportion of players’ income that should be attributed to their image rights.

A spokesman for HMRC confirmed that the use of directors’ loans from players’ companies was also being looked at as part of their investigation.

“HMRC are well aware of attempts to use image rights as well as other schemes to avoid the 50% rate of tax,” the spokesman said.

A spokesman for Rooney said: “Everything Wayne’s companies do is legitimate and within the letter and spirit of the law.” Agents for Barry and Sturridge did not return calls.

Julian Hedley, a partner at Saffery Champness who has advised sports stars for 20 years, said loans from image rights “come with a very serious health warning”.

He added: “It’s possible the players and their agents will not have put a loan agreement in place and will not even be charging interest.

“The danger is that HMRC will judge this to be a sham, and say the loan is effectively income and insist that it is taxed accordingly.”

There is added urgency. Uefa, which controls the lucrative Champions League and Europa League, has given clubs until next year to be transparent in their accounts under its financial fair play regulations.

A spokeswoman said: “Tax is not something we are looking at, but if money for image rights is being used instead of salary payment it may be a different matter.”

----

Greedy bastards. Footballers and other celebrities often make a big deal of it when they do anything for charity, but the best thing they could do is shut up and pay the tax that finances our schools, hospitals and other public services. It used to finance our universities as well.

[Rotterdam]

I dislike the idea of these sort of loopholes, but you would if you could, so I don't blame them.

[jembob]

It's just dumb to pay tax when you don't have to and the alternative is lawful. Even with the tax efficient scheme described here, a player earning £100k per week will still pay £2 MILLION of tax in a year so it's not as if they don't make any contribution. If you are employed, normally you would have tax deducted through  PAYE but anybody here who is self employed will know that their accountant can save them a fortune by applying the legitimate tax rules to income, and I can't imagine any sensible person instructing their financial advisers not to bother but just send HMRC 50%.

Anybody still guilty enough about saving tax could always invest the difference in projects which they believe in (schools, hospitals, charities etc) rather than let idiotic governments waste it on vanity projects and illegal wars. Regardless of what your view is of the sums which footballers get paid, taking good financial advice is sensible and not greedy at all.

[cdbearsfan]

I dislike the idea of these sort of loopholes, but you would if you could, so I don't blame them.

I wouldn't. If I was a multi-millionaire I would realise that it's only fair I pay my share to help build schools, hospitals, etc.

Greedy bastards the lot of em.

Still, we're all in this together...

[TopDeck113]

Anybody still guilty enough about saving tax could always invest the difference in projects which they believe in (schools, hospitals, charities etc) rather than let idiotic governments waste it on vanity projects and illegal wars. Regardless of what your view is of the sums which footballers get paid, taking good financial advice is sensible and not greedy at all.

The alternate view is that the UK economy in all its various manifestations allows certain individuals to earn vast sums of money.  Morally (which, I know, is an increasingly moribund principle) those who earn that sort of money should pay their dues to the ongoing benefit of the society that enabled them to so thrive. 

Unfortunately, we have a tax regime that allows those who can afford it the most, to legitimately avoid doing so, meaning that the burden as a percentage of what we earn is borne by those of us of us who have no choice but to pay our PAYE every month.

[JUAN PABLO]

I dislike the idea of these sort of loopholes, but you would if you could, so I don't blame them.

I wouldn't. If I was a multi-millionaire I would realise that it's only fair I pay my share to help build schools, hospitals, etc.

Greedy bastards the lot of em.

Still, we're all in this together...

or at least buy us a striker with a whip round..

[Greg N'Ash]

HMRC are basically above the law and incompetant with it, so good luck to them. I wouldn't give this government any money to spend either if i had the choice

[philthebar]

It's legal, so no problem.  Difference between tax avoidance and tax evasion. 

[cdbearsfan]

There's also a key difference between 'illegal" and 'immoral'. Just because they're acting within the law doesn't mean they're not arseholes of the highest order.

[Risso]

The Coalition government closed a major tax avoidance loophole on December 9 just gone that allowed the wealthy to avoid tax by taking loans from EBTs rather than paying PAYE and NI.  There are still other such schemes, as there are always tax barristers working on new ways to avoid tax, but it's getting harder.  Incidentally, it's not just footballers who indulge in tax avoidance.  There's a founder member of a band beloved of many on H&V that uses IOM schemes to avoid tax.  I'm not going to say who though.

Oh and the Guardian, ardent campaigner on such matters, is hardly whiter than white either.

[CJ]

Tax avoidance, however repugnant and morally base it is, is a thriving industry and no surprise that the first thing these greedy bastards do is probably employ a 'good' tax accountant.

It's by no means limited to footballers - a high profile retail magnate was highlighted last year as avoiding hundreds of millions in corporate tax by converting his profits to shares held offshore.  And I was watching part of the Treasury Committee quizzing the head of Barclay's Bank it became clear that they have hundreds of off shore companies which reduce their tax liabilities.

It's estimated this all costs about £25billion a year.

My disabled son is likely to lose some of his Disability Living Allowance as part of the cuts, but hey - we're all in it together - and it's clear where the ConDem 'difficult decisions' are being made.

[cdbearsfan]

The Coalition government closed a major tax avoidance loophole on December 9 just gone that allowed the wealthy to avoid tax by taking loans from EBTs rather than paying PAYE and NI.  There are still other such schemes, as there are always tax barristers working on new ways to avoid tax, but it's getting harder.  Incidentally, it's not just footballers who indulge in tax avoidance.  There's a founder member of a band beloved of many on H&V that uses IOM schemes to avoid tax.  I'm not going to say who though.

Oh and the Guardian, ardent campaigner on such matters, is hardly whiter than white either.

Surely you don't mean the Best Band in the Wirrald?

[lordmcgrath5]

Anybody still guilty enough about saving tax could always invest the difference in projects which they believe in (schools, hospitals, charities etc) rather than let idiotic governments waste it on vanity projects and illegal wars. Regardless of what your view is of the sums which footballers get paid, taking good financial advice is sensible and not greedy at all.

I couldn't possibly disagree more with this.

Read an interview not so long ago with that annoying, talentless, navel-gazing "artist" Tracey Emin. She was moaning about tax and came up with the ludicrous idea that high taxpayers should have some say in how the money is spent. You can imagine where it would go if she had anything to do with public spending - vast sums on her own and her mates' work.

As for giving to charity instead of paying your fair share of tax- the classic rich bastard's cop-out. Firstly, giving to charity by celebs is generally all about building their brand - "look at me organising this charidee auction, aren't I great", while at the same time using every trick in the book to avoid tax. Secondly, that's what the US model is all about - a small state with philanthropists supposedly filling the gap. Except they don't come anywhere near, do they?

[cdbearsfan]

Why should only the wealthy get to decide where the Government spend their money?