Tax Avoidance reaches the Premier League- Mitch Young
December 6, 2012
First it was Jimmy Carr and the comedians, then it was Starbucks, Amazon, Google and now Premier League football clubs have been reported to be avoiding paying corporation tax. The public up roar and the media interest has led many to believe that avoiding tax is criminal, however it is not and it is important to make a clear distinction between tax evasion and tax avoidance
Tax evasion is in quite simply unlawful and can expose the taxpayer to penalties. Examples include giving inaccurate information or describing a transaction as something different from what it really is. It is basically a form of deception.
Tax Avoidance however has developed over a number of years in to what we have today in artificial schemes by which a sequence of transactions is undertaken for the sole purpose of mitigating a tax burden much like what has been reported in the media.
I have taken a quote from the judge in the tax case Duke of Westminster 35 that perhaps sums it up the best “A taxpayer may have a choice between two or more alternative methods of achieving a desired result. He is entitled to select the method, if lawful which avoids altogether or reduces the tax he would pay on another alternative. He is not to be taxed on the basis that a more normal method would attract a heavier tax burden. The selection of a tax effective method is called tax avoidance”
It is hard to stomach that Premier League Clubs such as Manchester United, Tottenham Hotspur and Newcastle United paid no tax on a combined surplus of £70m. The Independent reported that more than £150m of profits were made by Premier League clubs yet only £3m in corporation tax was paid an effective rate of 2% tax. You may ask yourself how the clubs are managing to do this.
Legally and with effective use of the accounting system premier league football clubs have been able to reduce their corporation tax by offsetting profits against prior year losses. Furthermore the reduction in corporation tax from 28 down to 24 per cent has seen tax bills lower further. Clubs are also able to make great use of player transfer fees as these can be written off over the period of a player contract this could lead to an amount of deferred tax. This is slightly different to the tax avoidance which has been implemented by the likes of Starbucks however it goes to show the ease of a company to avoid paying corporation tax in full.
The question for many is not whether it is illegal it is a question or morality is it right that these profitable football clubs should be paying very little or no corporation tax. My view is simple. It is not the clubs fault; it is the fault of the government and HMRC are they making it too easy for companies to avoid tax? UK Tax legislation is extremely vast and complicated; there is many a loop hole which has been taken advantage of. Tax avoidance is legal and as long as it is legal companies (including football clubs) will be doing all they can to pay as little corporation tax as possible and let’s not forgot these football clubs do pay other taxes such as PAYE and National Insurance.
The government and HMRC need to have a thorough review of corporation tax and how this is structured. It has been reported that in tomorrow’s autumn statement the Chancellor will be announcing a large clamp down on tax avoidance. Reports of naming and shaming tax dodgers could be seen as one way to stop a few from avoiding tax but this leads to the question does bring the integrity of our tax system into light. I think we need to work closely with HMRC, provide larger resources in totally reforming the corporation tax system and dare I say it even abolishing it completely!
Mitch Young is the Tax Manager at LJD Chartered Accountants.
With over 5 years’ experience in Accountancy and Taxation, specializing in UK Personal Tax compliance and advisory, Mitch clients range from self-employed individuals, high net worth individuals and small businesses amongst others. He is currently working with a number of professional footballers dealing with their tax compliance and advice.
In addition, he is also the Chairman and Manager of FC Team Football Club –www.fcteamfc.com.
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