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