After years of going easy on 'community assets', the gloves are off as far as the HMRC and football clubs are concerned
There was a time not so long ago when the tax authorities went easy on football clubs, seeing them as beloved, amateurishly run havens which should be given leeway on tax bills so they could perform their community role. That patience expired during the 2000s as clubs serially plunged into administration, 54 times in England and Wales since the 1992 Premier League breakaway, leaving millions of pounds in unpaid tax while, according to the leagues' rules, paying players' wages and other football clubs in full.
In 2012, it seems like war. Rangers last week became the biggest British club to collapse into administration ? Leeds United, insolvent in 2007, may compete for that sad distinction ? with �9m tax unpaid in just nine months since Craig Whyte's takeover. Rangers face a huge further bill to Her Majesty's Revenue and Customs if the club lose the court action brought by HMRC over the use of employee benefits trusts, by which players were paid via trusts rather than straightforwardly through the books with PAYE. Even if HMRC wins the case, the resulting judgment, for which a tax bill of �49m has been mooted, will now become just another unpaid creditor in Rangers' administration.
HMRC no longer hangs around allowing the PAYE bill to run up, while the lavish wages on which that tax is due continue to be paid, principally to the players. Since 2009 alone, HMRC has issued 26 winding-up petitions, against 12 Football League clubs and Portsmouth, who in 2010 were in the Premier League.
The list includes stalwart names of the game's history: Crystal Palace, Plymouth Argyle, Cardiff City, Hull City, Rochdale, Preston North End, Notts County, Bournemouth, Southend United, Gillingham, Sheffield Wednesday and Accrington Stanley. HMRC has lost the sentiment that this history must be trodden on gingerly, that football clubs are too precious to fall. The official position, according to an HMRC spokesman, is that: "Football clubs are like any other businesses; they must pay their obligations to the public revenues."
Portsmouth's second administration in two years has been precipitated by demands for �2m unpaid tax, and HMRC was active in the high court to demand that Andrew Andronikou, the club's previous administrator and current administrator for the holding company, CSI, should not be appointed, because of "issues of conflict".
HMRC has chased Premier League clubs who paid their superstars partly for image rights, therefore free of PAYE and national insurance and often via offshore tax havens, and 16 clubs have now made increased tax payments dating back to 2004. Chelsea announced in their 2010?11 accounts that they have settled their image-rights issue with HMRC by paying �6.4m.
HMRC has now sent clubs questionnaires on "benefits in kind" they may have treated players to, including the use of yachts, planes, property or cars, because the financial value of these may be subject to PAYE.
Even the ill-fated and arguably misguided prosecutions by HMRC of the former Portsmouth owner, Milan Mandaric, chief executive Peter Storrie and manager Harry Redknapp for alleged tax evasion, of whom all were acquitted, is thought by some to spring from a resentment at football's perceived generally casual attitude to paying its taxes.
After Redknapp's and Mandaric's acquittal a fortnight ago, HMRC's assistant director of criminal investigations, Chris Martin, nevertheless read a statement at Southwark crown court with the intended ominous warning: "We accept the verdict of the jury but I would like to remind those who are evading tax by using offshore tax havens that it always makes sense to come forward and talk to us before we come to talk to you."
The football clubs reject the perception that they are any longer deficient about paying tax, and as part of their general campaign to persuade the nation that they are good citizens, point to the total tax paid.
One benefit to the public in straitened times of footballers being lavishly paid, some with the personal fortunes of overseas billionaires including Roman Abramovich and Sheikh Mansour at Manchester City, is that the 50% upper tax rate has to be paid on those mountainous wage bills, plus national insurance. The Premier League estimates that its total tax contribution ? mainly in PAYE, also in VAT and corporation tax from the handful of clubs which record a profit (those which make losses can use that as a tax break) ? will total �1bn this year.
Yet handsome as that money is, much of it from clubs in neighbourhoods of deprivation, HMRC's indignation at football will not subside while the football creditors' rule remains in force. This is the rule, unique to English football, by which the leagues allow clubs in administration to leave unpaid all creditors including tax, charities (most notoriously St John Ambulance), local businesses, public services and local schools, but insist clubs must pay all players and other clubs in full.
HMRC has legally challenged the rule, claiming it is "unfair, unlawful and unacceptable". The parliamentary select committee for culture, media and sport recommended in its report on football governance last year that the rule should be abolished, partly because "it harms the communities that football is supposed to serve".
However, both the Football League and Premier League are spending time and money defending the rule, arguing that other clubs must be paid in full if an insolvent club is to be reaccepted by the league, to prevent a domino effect and preserve "sporting integrity".
In its 106-page written case to the high court, HMRC lists figures from the administrations of clubs. At Crystal Palace, in administration in October 2010 under the ownership of the former mobile phone magnate Simon Jordan, �2m was owed to football creditors, while �25m was owed to the usual dispiriting list of "ordinary" creditors, including �2.7m to HMRC. The football creditors were paid in full by the Football League directly, from TV and sponsorship money due to Palace; the ordinary creditors were offered 1.95% of their bills.
After Portsmouth's meltdown, the Premier League withheld TV money and parachute payments solely to pay �46m owed to football clubs and players in full. The unsecured creditors among Portsmouth's total debts of �106m, including �17m tax, principally PAYE on the huge wages paid to players, had to settle for 20%, promised over five years. Now, following the club's further meltdown after the new owner, Vladimir Antonov, was arrested and accused of bank fraud in Lithuania, HMRC and those unsecured creditors of Pompey's first administration will not receive anything close to 20%.
In his evidence to the select committee, the Premier League's chief executive, Richard Scudamore, said: "I am not defending many aspects of the consequences of the football creditors' rule, but on balance I think the Football League, the Football Association and I agree that of the options available, it is better to have the rule than not have the rule."
HMRC vehemently disagrees, believing that football clubs look after themselves, leaving everybody around them high and dry after reckless overspending. Judgment is expected next month. While the rule remains, there is no prospect of peace, between the national sport, and the nation's tax man.
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