Worcester Warriors
HMRC To Investigate Premiership Clubs
By JP
March 9 2021
The tax authority’s investigation into the 12 Premiership clubs, plus Championship side Saracens, could lead to a raft of salary-cap breaches if image-rights deals for players are found to have been overvalued
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Taken From The i, written by David Parsley, Hugh Godwin |
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England’s elite rugby clubs are facing a wide-scale investigation by tax officials into how payments to players and agents are accounted for, i can reveal. The move from Her Majesty’s Revenue and Customs (HMRC) follows a similar probe into football, which resulted in players and agents being forced to hand over millions in unpaid taxes. HMRC is understood to have launched the investigation into each of the 12 Premiership clubs, as well as Saracens, which remains a shareholder in the top-flight league despite playing in the Championship – the sports second-tier – this season. The tax probe is believed to be focused on payments that players receive on top of their club salaries, as well as the role of agents in transfer and contract negotiations. It comes at a tough time for clubs who have lost tens of millions during the Covid-19 pandemic with no income from tickets sales or matchday spending by fans. HMRC is looking to recover unpaid taxes on earnings players accrue via channels away from their playing contracts, including image-rights deals. Players are paid additional money on top of salary for the use of their image by their club, such as in advertising and endorsements. This additional income is often paid to a company set up by the player and is only taxed at the 19 per cent corporation tax rate, rather than at the 45 per cent income tax rate top players pay on their general salaries. Tax officials will also look for payments being made to offshore companies and via other tax efficient channels to determine whether or not players have paid all tax due. HMRC will investigate individual deals, and if it believes the amount paid for image rights is more than the true value it will demand the payment of back-taxes and enforce fines. The investigation is confirmed in Saracens latest annual accounts. In its figures filed to Companies House, the club notes: “In line with other Premiership rugby clubs, Saracens has received a ‘Check of Employer Scheme Records’ notice from HMRC.” Asked about the investigation, three directors from different clubs confirmed the investigation included all the 13 of the Premiership’s shareholding clubs. The 12 clubs currently playing in the Premiership, plus Saracens, own 73 per cent of Premiership Rugby Limited (PRL), the league’s governing body. The remaining 27 per cent is owned by venture capital investor CVC Capital Partners. In recent years HMRC has made clear that payments it considers are, in reality, earnings accrued as a result of a player’s general role cannot be treated as ‘image rights’ for tax purposes. The probe will also consider the role of agents in professional rugby. HMRC will enquire into a case of what is known as ‘dual representation’, where there is evidence to suggest that an agent has not worked for both parties on the basis of the fee split that has been declared and against which tax has been calculated. A spokesman for HMRC said: “HMRC works closely with professional sports clubs, players and agents to help support them in getting their tax right, stepping in to put right any mistakes to ensure they are compliant with their tax obligations, as we do with other UK taxpayers. “We look forward to continued co-operation with clubs and players throughout 2021, particularly during these challenging times.” Last year Saracens were relegated to the Championship after being found guilty of breaching the game’s salary cap over three seasons. While the HMRC probe is not connected to the Premiership’s salary cap – which limits the amount any one club can spend on its squad – it could spark a series of investigations into potential cap breaches by PRL. Under Premiership rules a club can spend £6.4m on players in the current season. Clubs can also benefit from a number of player credits. However, many clubs spend as close as they can without going over the cap. If HMRC deems some players’ image rights payments as salary, then there is a danger some higher spending clubs could find themselves in breach of the cap. This could lead to a number of clubs being put into a similar situation to Saracens and forced to face to prospect of relegation for an overspend on their squads. PRL declined to comment. |
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09/03/2021 11:24
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Edited 2 time(s). Last edit at 2021:03:16:08:24:57 by Faithful_City.
Quote:w4rriorz1980
There could be 1-2 clubs who people will think they will be looking over their shoulders....
I'll bet there are several, especially when you look at the players that are playing for some clubs.
JP
I think this will be quick, and potentially nasty. HMRC know exactly where to look, what to value and how to negate potential alternative justifications offered as a result of all the case history and legal judgements they have had from their review of Soccer.
The approach they will take is to present clubs with a list of transaction types that they know existed in soccer and simply say "confess, and tell us all - and we will discount the fine we impose on you; or if you don't fully disclose and we find ANYTHING we will throw the book at the club and go for the maximum fine possible"
I think most clubs will quickly realise that compliance is the lowest risk for the club.
What that will do is hit the players hard, as they will have to pay over the additional taxes, and it will give PRL a problem. If all clubs have been equally non-compliant with the tax legislation then no one club has gained an unfair salary cap advantage. If however some clubs have a greater level of non-compliance than others how will they deal with imbalances?
It will also give PRL a problem in terms of timing. It is possible that a few clubs will have minor breaches and chose to accept HMRC's findings. At the same time some clubs may be facing far bigger breaches and chose to defend themselves in court - which may take a couple of years. Do PRL "punish" the clubs who accept HMRC immediately whilst not punishing clubs with far bigger potential breaches until the court action is finished?
I don't have much confidence in PRL being able to navigate this one given their previous form
Thanks
JP
- if players are employees, then any tax fraud likely to be at Trading Ltd, but there is at least a one company set up for warriors players (accounts filing also late)
- article suggests players have their own companies, which for the likes of Hougaard is obvious, but for the likes of Kai Owen is not
- if your only source of income is your employer, then you can’t be self-employed, but all earnings from a company or otherwise still have to be declared
- probe maybe the reason for late filing of Trading, to get it right for the accounts 2018/19
- England rugby not being probed at the same time? But PRL companies are ingrained with the 13 clubs (concurrent directors on both)
- salary cap has no meaning in this, it is just the reporter conflating issues
- warriors reported furlough was welcome, suggesting some players at least are employees
- no word from warriors re the winter sports grant
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so in summary, all circumstantial ideas from me!
The next thing will then be if image rights are being inflated to avoid tax, are those payments then caught by the salary cap. I’d suggest they probably are.
This could get very interesting.
- during negotiations the player wants a certain amount of money
- that money may be problematic due to the salary cap
- player is paid part in salary and
- paid for the rights for the club to use the players image in communications etc
The concept of payments for Image Rights is completely legitimate. In the football world they were abused to enable a reduction in PAYE, with the balance sent to a company (overseas if they are an overseas player).
In rugby, where the salary cap operates, I can see how it would be a practical way of enticing the top talent whilst mitigating the impact on the salary cap. The one fly in the ointment would be a challenge from the Revenue authorities regarding the balance between what should be salary and what should legitimately be payments for Image Rights.
For the overseas tax avoidance - income earned in uk need to be overseas for 183 days a year, unless your are big company like google , amazon and just register oversees and pay some stupidly nominal agreed fee with HMRC! Anyone explain the difference to me?
Player X, from somewhere like South Africa will play for club Y if they guarantee a total package of 100 in his pocket/available to use per year.
SALARY
To get player X 100 club Y could pay him 200 (assuming tax rate is 50% and no reliefs available - which isn’t the case but helps the simplified answer).
Or
IMAGE RIGHTS
They could split it as follows
Pay a salary of 100 which taxes at 50% leaves him with 50.
Player X gifts his Image rights to an offshore company (usually in a tax haven such as BVI so isn’t taxed). Club Y will pay the offshore company 75 for use of X’s image.
Player X ends up with 125
Club Y only pays out 175
Salary cap portion is only 100 - freeing up 100 to be spent elsewhere.
No idea if this is the variant used by any of the Premiership clubs, but is an example of an arrangement seen elsewhere.
I’m only aware of the Itoje deal. Here the IR Co was owned by Itoje and members of his family. He sold c30% of it to 3 Saracens Directors. The SCM alleges that the price paid was inflated in return for Itoje receiving a commensurately lower salary. If true this would significantly reduce Itoje’s tax burden and would also reduce his contribution to Saracen’s SC calculation.
Quote:Janner Dave
It’s complicated. Trying to simplify it:
Player X, from somewhere like South Africa will play for club Y if they guarantee a total package of 100 in his pocket/available to use per year.
SALARY
To get player X 100 club Y could pay him 200 (assuming tax rate is 50% and no reliefs available - which isn’t the case but helps the simplified answer).
Or
IMAGE RIGHTS
They could split it as follows
Pay a salary of 100 which taxes at 50% leaves him with 50.
Player X gifts his Image rights to an offshore company (usually in a tax haven such as BVI so isn’t taxed). Club Y will pay the offshore company 75 for use of X’s image.
Player X ends up with 125
Club Y only pays out 175
Salary cap portion is only 100 - freeing up 100 to be spent elsewhere.
No idea if this is the variant used by any of the Premiership clubs, but is an example of an arrangement seen elsewhere.
To simplify it further...
HMRC are not in the least bit interested in salary cap. After HMRC have finished there may be implications for the clubs re salary cap.
As I understand it the clubs pay (ie employ) the players directly for playing and the player then pays tax on that (PAYE) at whatever the rate (possibly 40%) is for their wages. Often the player will set up a Ltd Company that receives the image rights payments. These will be liable to corporation tax at 19%
HMRC will be looking at those image payments to see whether they fall into what would be considered a normal part of the players employment contract and thus liable for tax at 40%
For the sake of argument let's suggest that a pre or post match tv interview attracts a payment of £100. HMRC would probably argue that should be paid through payroll and attract 40% tax as it could reasonably be expected to be part of the job. If however it was paid to the player's Ltd co it would only attract 19% tax. HMRC will be looking to see if they can get that extra 21% tax that they think may be due.
Over valuing allows more income to be moved to the lower tax regime.
As others have said HMRC don’t give two hoots about the salary cap. The issue for the club becomes disclosure of the arrangement and if tax man calls it a dodge to avoid it being treated as income it’s much harder to persuade the salary cap manager it’s not.
The operation of the salary cap and the potential use of this as a potential mechanism to avoid it, means it could catch clubs out twice.
Personally I doubt we’re caught on salary cap side as it’s hard to imagine many of our squad earn meaningfully via image rights and the ones that might may well be marquee.
If you have a squad stuffed with bought in quality, that might arouse suspicions....
TBH if there is another big scandal on this it will be time for a more serious look at the integrity of the competition as its flat out cheating.
As Neiljk says, if you have a team that looks like it has a disproportionate amount of what would be assumed to be high earners, then the HMRC findings will surely galvanise the salary cap scrutinisers to wake up again. Or not, given how long Sarries got away with it.
Quote:NW2
The reality is if your employer/club tells you there is a way you can take more money home, most people would take it, so I don’t particularly blame the players. If HMRC decide it’s wrong, then they will have to face the consequences and pay up.
As Neiljk says, if you have a team that looks like it has a disproportionate amount of what would be assumed to be high earners, then the HMRC findings will surely galvanise the salary cap scrutinisers to wake up again. Or not, given how long Sarries got away with it.
Maybe - but let’s be clear - it was Itoje (via his agents) who proposed his transaction to the Directors - not the other way round.
Saracens sabotaged the Premiership big time and professional rugby in this country--why on earth is anyone wanting to get them back?
It also shouldn’t be forgotten that this has an inflationary effect of player remuneration, that further disadvantages those with lower budgets and those playing by the rules.
PRL and the 13 P-share clubs are just an easy target after HMRC has learnt a few things from their football probe, and can just replicate, as the premiership clubs have probably just been (unwittingly) following the football example
The regulations are grey, and open to interpretation, until you are the wrong side of them.
(Wait for the exit of our SA players, and DoR on mass)
(Jason and Colin may have another problem on their hands - time to register another company guys!)
