Professional Footballers, HMRC, Employee Benefit Trusts and Tax Advice

HMRC is currently investigating the tax affairs of 171 professional football players – a 90% increase in one year

It has been reported recently that HMRC is currently investigating the tax affairs of 171 professional football players, an increase of 90% in one year.  HMRC’s crackdown on the football industry continues to be tightened, indeed it is known that they operate ‘fishing schemes’ to catch footballers out as part of their investigations. By the same token, despite the huge salaries of Premiership footballers, there is also data that shows footballers may have collectively lost c.£1billion during the Premier League era, often due to poor financial advice, with many individual bankruptcies being the result. In this article our Insolvency Practitioners report on HMRC’s investigations into footballers, with a focus on image rights, film schemes and Employee Benefit Trusts. We conclude that there is a need for improved tax and financial advice for footballers.

<Update on 21st January 2019: the numbers of footballers being investigated continues to increase, now standing at 173, plus 44 clubs and 31 agents.>

HMRC has Collected £329m in Additional Revenue Since 2015/16 from Football Investigations

The massive rise in Footballers’ incomes since the launch of the Premier League quickly attracted the attention of HMRC, and it has consistently increased its focus on the industry. This culminated in HMRC establishing its specialist Football Compliance Project in April 2017, which oversees and coordinates all of its football industry compliance activities.

As a direct result of this focus, HMRC, as of October 2018, is investigating the tax affairs of 171 professional football players, an increase of c.90% compared to September 2017. The football clubs themselves – and Agents – are not immune and many are under investigation as well.

These investigations into the football industry have resulted in HMRC collecting an additional £332m in tax revenue since 2015/16. This shows how hard HMRC is cracking down on the football industry.

Investigations into Image Rights are a Significant Focus

HMRC has long believed that image rights payments are used by players, through their advisors, to minimise tax. Since 2000, players have been able to treat the income they derive from their image rights as separate from their income as players. In the latter case they are taxed as employees. In the former they have been able to set up image rights companies to receive income from image rights, which is taxed at the lower corporation tax level of 19%.

What About ‘Film Schemes?

Earlier this year, it was reported that footballers were facing a total tax bill of £250 million for involvement in film schemes.

129 top footballers are being investigated by HMRC over £250 million worth of investments in a tax avoidance ‘film’ scheme through Kingsbridge Asset Management. Such film schemes are viewed by HMRC as tax avoidance schemes, in which participants invest their own money (and sometimes bank loans) into schemes, allowing them to significantly reduce the taxes they pay on their salary.

It is known that one of the footballers is a former Manchester United player whose investment into a scheme was £33.5 million, which was a mix of his own money and a bank loan. Players/investors are able to delay paying tax on their investment for the duration of the scheme due to the tax relief that was on offer.

Film schemes were originally popular in the early part of this century when the Government of the time supported British Films with tax breaks. HMRC’s view, now, is that they are often tax avoidance schemes and is trying to claw back at least 70% of the amounts put in, plus interest and fines, meaning that investors are likely to repay close to what they put into the scheme.

Football and Employee Benefit Trusts

We have written several articles about Employee Benefit Trusts and how HMRC is winning the battle to claim tax back from such schemes. In Football, a significant victory for HMRC came in 2017 when the Supreme Court ruled in its favour over Glasgow Rangers’ use of Employee Benefit Trusts (EBTs).

To recap, EBTs are schemes that were widely used by some companies in a bid to minimise tax liabilities. Companies would set up trusts and make cash payments from these trusts in the form of tax-free loans to employees or beneficiaries. This would avoid the need to pay tax. Whilst initially considered legitimate, legislation has since been passed outlawing the use of the scheme for tax avoidance purposes. In the specific case of Rangers, HMRC won the argument that such loans were employee earnings and should have been subject to the usual NI and PAYE payments.

Over 80 members of Rangers’ staff were paid by EBTs, including players and managers. Rangers were not the only club to use EBTs, but it is understood that some have already settled with HMRC.

The big question, of course, is who is liable for paying the tax owed to HMRC? The company or the individual? Until recently, the answer was the Company. However, The April 2019 Loan Charge legislation means that the liability could jump from the company to the individual if the company is insolvent.

Once again, it was not just Footballers, through their clubs, that invested in EBTs, but they remain a focus of the HMRC investigation

Footballers have lost £1bn from bad financial advice

There is much evidence that large numbers of recently retired footballers are struggling with severe financial difficulties. There is a suggestion that c.500 former players from the Premier League era may have lost up to £1bn because of disastrous investments and HMRC demands following their involvement in investment schemes promoted as tax-efficient. Additionally, research conducted in 2013 by XPro suggested that as many as 60% of high earning former Premier League players, were subject to bankruptcy within five years of retiring. In a more recent investigation by FourFourTwo magazine published in August 2018, the number of professional footballers encountering financial difficulties was put at 40%.

Both figures are worryingly high and, as a result, calls are growing for reform of the Professional Footballers’ Association over the help and advice it gives to players, past and present about tax and investment matters.

At Antony Batty and Company, our team of insolvency practitioners and support staff are experienced in advising clients, and negotiating with HMRC, over tax matters, especially regarding Film Schemes and Employee Benefit Trusts. The value of good, professional advice in these arenas, could have assisted footballers (and anyone else – either individuals or businesses) in mitigating any losses they may have incurred.

If you or your company are facing a large tax bill because of Employee Benefit Trusts (or film schemes) and the introduction of the April 2019 loan charge, we can provide all the help and expertise you need in negotiating a settlement with HMRC.

Please contact us or call us on 0208 088 0633 for a FREE initial consultation.