28 December ~ In the past year Her Majesty’s Revenue & Customs has intensified its battle against tax avoiders in football but 2011 could see the biggest step yet. HMRC ushered in 2010 by putting Crystal Palace into administration and by the end of the year had issued winding up petitions on at least 28 professional or semi-professional UK football clubs. The winding up orders are part of the brinksmanship between HMRC and club owners, who are reluctant to pay but often magically "find" the money after being threatened with extinction.

Cardiff City were summoned to the High Court many times in 2010, while some clubs only settle after finding new owners, for example Milan Mandaric at Sheffield Wednesday, who paid off a £1.1 million tax bill. Other clubs struggle for years to pay, such as Margate, who in 2010 cleared a tax bill that had hung over the club for five years and once stood at an estimated £220,000. The only two clubs killed off by HMRC in 2010 – Chester City and Ilkeston Town – were outside the Football League, where attempts are being made to stamp out tax avoidance. The Football Conference carries out a regular audit of tax owed by clubs in the Blue Square Bet Premier, North and South. At the last audit in October 2010, tax owed by clubs in all three leagues was down to £400,000 from £1.6 million a year ago.

The audit began because in the last three seasons, HMRC has tried to wind up 13 Conference clubs, six more have stopped trading and another entered into a company voluntary arrangement to survive. HMRC is reluctant to provide more information on this tax purge. Asked exactly how many clubs were subject to winding up petitions, or how much tax the football industry generates, HMRC could not answer. A subsequent Freedom of Information enquiry on WSC's behalf asked HMRC exactly how many clubs were served winding up orders in the last full tax year and the 2010 calendar year and how much money the football industry pays in tax annually. HMRC does hold some information on this but refused to respond because this would take more than three and a half working days and cost more than £600.

HMRC claims not to keep records of businesses by trade but does admit that football generates hundreds of million pounds in tax. This, however, is primarily income tax on players’ wages. A study by the Independent found that 14 of the 20 clubs in the 2009-10 Premier League lost money. Businesses losing money tend not to pay tax. "Not all clubs fail to meet their tax obligations by any means but, as a sector, football clubs have a long history of not paying their tax debts on time,” says an HMRC spokesman about the rash of winding up petitions. "There is little HMRC can do for a business whose viability is dependent on not paying the UK taxes to which they are liable."

As the surge in winding up petitions shows, HMRC is taking a harder line and another legal action due in court on February could have a profound affect on the game’s finances. If a club goes into administration, football-related creditors, ie other clubs, players or managers, get paid first. When Portsmouth and Crystal Palace collapsed, fans had to rally round to pay St John’s Ambulance, which had shamefully been left unpaid. In July 2010, HMRC challenged football’s preferential role by filing another yet writ, this time against the Premier League, but a ruling is expected to apply to all football clubs. “There is nothing in insolvency legislation that provides for unsecured debts due to ‘football creditors’ to be paid in preference,” explains the HRMC spokesman. “We are acting in the interests of creditors not in the football industry. We don’t think its right they are offered a tiny percentage of a debt owed to them, against full repayment to all others in the industry.”

When the case comes to court in February it could, some experts warn, upset the entire transfer system. If a player is no longer guaranteed full payment if a club collapses, there is only one solution those players are likely to take – and that is ask for even more money up front. Steve Menary

Comments (6)
Comment by Dalef65 2010-12-28 13:35:52

I dont have an opinion one way or the other on the whole thing,and I am in no way shape or form a legal expert.
However,I believe that HMRC tried to challenge the principle of football creditors being paid in preference,in the High Court in 2004.
They I believe that this establishes some sort of legal precedence.....??

So when their spokesman says that "there is nothing in insolvency legislation................etc.............",then at best he is being disingenious.

And at worst he is guilty of not telling the whole truth and nothing but the truth...

Comment by donedmundo 2010-12-28 13:48:56

About time too. What is not always made clear is that HMRC are not after Corporation Tax (Income Tax for companies)from football clubs but PAYE tax deducted from players' wages. The money, therefore, does not belong to the clubs in the first place.
On the High Court point the court noted: "The power of the league to impose the obstacle and secure full payment for creditors of its choice may be objectionable and indeed the All Party Parliamentary Group in its First Inquiry Report has found it objectionable and recommended its abolition." The case was not a 'test case' and the ruling applied only to the peculiar circumstances of Wimbledon F C. It does not set any sort of precedent.

Comment by Glass Half Empty 2010-12-28 14:18:25

It is not only clubs that are attracting the interest of HMRC in respect to tax avoidance. I have it on good authority that cases are being prepared against a number of high profile football individuals which may well break in 2011. Mums the word.

Comment by Lincoln 2010-12-29 09:36:56

I always get a bit annoyed when the inference is that HRMC have done something wrong. They are collecting "our" money. Sure there is some sympathy for the clubs but they have not being paying tax fully which essentially is not paying as we would.
Further to that, the winding up order is very much a last resort in business for a business, but what other manouvre does the HRMC have? They are not giving a service or a product so cannot remove it. St John's ambulance could refuse to go to games as a first action to get money back. HRMC can only issue to winding up order to have any sort of leverage.

Comment by David Agnew 2010-12-30 16:52:38

"HMRC ushered in 2010 by putting Crystal Palace into administration..."

Not True. Crystal Palace were placed into administration by their largest creditors - "Global Management" company Agilo.

"The only two clubs killed off by HMRC in 2010 – Chester City and Ilkeston Town – were outside the Football League"

Neither Chester City nor Ilkeston Town were killed off by HMRC. The people responsible for running up debts that they then did not pay (Stephen Vaughan in Chester's case, Chek Whyte in Ilkeston's).

"If a club goes into administration, football-related creditors, ie other clubs, players or managers, get paid first. "

There is a specific definition of what Football Creditors (not football-related creditors) are, and it is defined by the sport's governing body, and if the criterion aren't met, then the club cannot continue, which hurts everybody in the long run. The club's staff (all staff, everyone from paid directors down to the catering staff and the stewards), and their pensions are protected by the Football Creditors ruling. Clubs outside the auspices of the FA (is ones that abroad, or in the Scottish, Welsh or Northern Irish setups), and former employees seeking compensation (including ex-managers - players have to be paid up in full before they leave a club) are not.

"We are acting in the interests of creditors not in the football industry. We don't think its right they are offered a tiny percentage of a debt owed to them, against full repayment to all others in the industry."

Well, they are not - they're purely acting in their own interests. And there's nothing wrong with that at all (as donedmundo says). After all, before 2003, the Taxman was considered a supercreditor by law, and received the same protection as Football Creditors did, and I don't recall the Taxman fighting on other creditors behalf them.

The Football Association have it in their power to stop HMRC persuing the Football Creditors ruling. All they have to do is add HMRC to the list of Football Creditors. But, as long as the majority of the FA that creates the rules is made up by representatives of the clubs, and as long as the clubs vote people such as Ron Martin (who has referred to the Taxman as 'HMRC Bank plc' such is his usage of the Tax system) as their representatives at Football League or FA level, then things won't change. After all, it is the clubs that end up getting punished, and not the individuals responsible.

Comment by Whiskyman 2011-01-02 23:07:19

HMRC should chase clubs who default for every penny.

These clubs are not only cheating the taxpayers of the country, they are also gaining an unfair advantage over the clubs that DO pay their bills on time.

One of the reasons I detest Leicester City with a passion is that they had a nice shiny new stadium built, decided they couldn't afford it, went into administration and effectively got away scot free.

Grossly unfair on all the clubs they are competing against.

Related articles

Aldershot out of the League and in administration
"Phoenix" club in financial trouble 2 May ~ The past week has been fairly traumatic for Aldershot Town. Last weekend a 2-0 defeat at Rotherham...
Rangers have escaped the worst of administration
20 March ~ Celtic winning the league at Ibrox would usually be the stuff of nightmares for Rangers fans. But after fearing the...
Should the football leagues have their own tax rules?
21 December ~ When Darren Ambrose struck for Crystal Palace to send Manchester United tumbling out of the Carling Cup, most of us were happy to see...