Many of us envisage that the modern-day footballer has vast amounts of wealth which allows them to live a lavish lifestyle most of us can only dream of. In fact, some of the earnings professional footballers accumulate during their playing career should also give them a comfortable retirement, despite their careers in the game being relatively short. However, at the same time, it is certainly not uncommon to have heard of stories surrounding professionals who once commanded astronomical salaries to lose it all.  

Whether this is due to bad financial management, failed business ventures, an expensive divorce or an addiction to gambling, every individual has their own story to tell as to what drove them down the road of financial decline. One common denominator for many footballers losing a large chunk of their wealth stems from high levels of debt, which they cannot support if their careers end abruptly. Quite often this can include large sums of tax owed to HMRC accrued on their huge salaries.

Over the past few years, many ex-professionals and current professionals have been caught up in complicated tax avoidance schemes, which has resulted in fortunes being lost as the tax man seeks to claw back unpaid taxes. For example, in 2015, a plethora of retired footballers were reported to have lost more than £100 million because of a controversial film investment scheme that was sold through an advisory firm. The players included current household and retired footballers who were targeted by HMRC for alleged tax avoidance.

This film scheme is just one of several tax avoidance schemes HMRC have been clamping down hard on. Another type of scheme, known as Employee Benefit Trusts (EBTs), have also been problematic, with many footballers again getting caught up. It appears that many of the footballers were targeted by promoters of marketed avoidance schemes as they were high earners who often rely on the advice of others to manage their finances.

EBTs were used to minimise income tax and national insurance charge on remuneration to employees and directors and generate a claim for corporation tax deductions for payments into the trust. A company would set up a trust, which would have a wide variety of powers and would usually be offshore. So, for example, if a company put in £100,000 into the EBT, that £100,000 would be deductible against the company’s taxable profit, but the Trust then makes tax free “loans” to the beneficiary.  HMRC are clearly keen to crack down on this double loss to the Treasury and in many cases, both individuals and companies have been issued with accelerated payment notices (“APN”). The APN is a demand which is payable notwithstanding that the actual amount due has not yet been determined. The APNs may relate to tax assessed as having been avoided on several years’ worth of drawings and for big earners, the demands are understandably causing cash flow issues.

The case against use of EBTs is not clear cut. A high profile ongoing legal case related to EBTs was heard on 15 and 16 March in the Supreme Court, involving Scottish Premiership club Rangers and HMRC. Judgement has not yet been handed down, but should HMRC win this case, it is widely expected that there will be a wave of aggressive tax demands to other professional football clubs across the UK. Even if they don’t succeed, it is widely reported that they will instead concentrate their efforts on the players themselves. This will include HMRC being in a strong position to demand income tax, PAYE and National Insurance payments from those who benefited from the scheme, together with interest and penalties as well. It is reported that certain clubs and players both past and present have taken advantage of these schemes in order to avoid paying tax on wages, dating back to 1999.

The result surrounding such complicated tax schemes has meant that hundreds of footballers are seeking help from the players’ union, the Professional Footballers’ Association (PFA). Another association Xpro, is representing many other retired footballers who are affected by HMRC’s demands for the repayment of tax reliefs granted on various investment schemes. Some are also facing potential bankruptcy where their homes are in danger of being repossessed. Add to that those who have been through an expensive divorce, you are left with some ex-professionals who once commanded sizeable salaries on the verge of being left with nothing.

The question you then ask yourself is why bother with such schemes and why do these famous footballers get themselves into this predicament, especially if they are high earners who make more money than the average person. Well to start off with, it would be beneficial to understand the reasoning behind the schemes and why they had proved to be an attractive enticement for footballers.

The film partnership schemes were initially introduced by the Government to encourage British film production in the hope of generating considerable revenue for the UK economy. The scheme would attract investment into the film with substantial tax concessions, thus, being regarded as a relatively established means of allowing tax payers to defer what were often very large tax liabilities.

A typical scheme would involve a Limited Liability Partnership (LLP) where the investors of the scheme become partners. The partnership then acquires the rights to what would often become a Hollywood blockbuster. The partnership would then lease those same rights back to the film production company, who would then go on to produce a movie with the lease agreement generating a revenue stream for the partnership. The acquisition process is funded in two ways; a capital contribution by the partners/investors and via a substantial loan taken out by the investors. The revenues received by the partnership from for the production company should repay the loans on behalf of the investors if the film is a success. What this then does, is essentially create a ‘loss’ for the partnership which can be offset against the investors’ own tax liabilities.

The steady rise of footballers getting into complicated tax schemes appears to have stemmed from a culture trend within the game, as many players adopted these schemes simply because their team-mates were doing it. It has also been widely suggested that many of the people involved felt like victims who were mis-sold and misinformed about the true nature of these schemes, resulting in an abuse of trust. Nevertheless, these schemes have been challenged, with HMRC claiming that the schemes took advantage of reliefs aimed at boosting investment in the British film industry. What makes this even more distressing for the players involved is that under powers introduced after the 2013 autumn budget statement, HMRC can demand to be paid a disputed tax amount upfront, even when a case is being heard, utilising on Advanced Payment Notice (APN).

One such victim who had fallen foul to this scheme was former Liverpool, Charlton, Tottenham and Fulham midfielder Danny Murphy, who was just one of several high-profile footballers who had invested in Ingenious Media, a company which helped finance films. Those who invested in the scheme became members of partnerships in order to invest, which ultimately meant that any losses could be offset against their income, thus reducing their tax bills in the process. HMRC was suspicious of such schemes and launched an investigation as it determined them to be specifically set up to avoid tax. The result meant that all investors had to pay back the tax they had saved over several years.  HMRC had offered to resolve this situation by offering those involved to settle the issue by paying 40% of their tax bill, which many took up. However, those that didn’t such as Danny Murphy, were hit with huge bills - and in Murphy’s case, resulted in him having to pay back £2.5m.

Ingenious Media had a further 70 former and current footballers signed up including house-hold names such as Wayne Rooney, David Beckham, Steven Gerrard and Gary Lineker, who were all hit with requests to pay large amount of debt accumulated from these schemes. On the one hand, Ingenious has disputed the claims by HMRC by suggesting that the partnerships were trading and produced successful movies that made substantial profits, resulting in tax being paid. They were also adamant that all the accounting was conducted properly, which unsurprisingly was dismissed by HMRC.

Nevertheless, the predicament some footballers may find themselves in depending on the outcome of the imminent hearing, especially those who have retired and are no longer able to generate funds needed to pay off their extortionate debt could result in many former high earners being reduced to bankruptcy.

Ahmed Ali

Marketing & Practice Development Executive 

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