Jason Reynolds, Director of the Home Counties team, reviews the complicated world of football finance & HMRC's hardline.

Football can be a divisive topic of conversation: some would love to talk about nothing but football; some can’t bear the thought. One thing is for sure though, and that is that football is a topic which is always in the headlines, for good or bad reasons, and it tends to transcend the back pages.   

A topic that seems to be of constant conversation is money in football, and specifically remuneration of football players. It seems there is always a story about the tax affairs of individual players, the clubs, or the leagues themselves. One such occurrence is that of Rangers FC in Scotland, who had a major falling out with HMRC, to the tune of a tax bill of £49 Million. There seems to be common discontent that players and clubs seem to be able to get away with these things and are almost “above the law”. Not in this case.

Rangers were looking for a commercial advantage, as they were losing out economically to their rival Celtic. During the period of the year 2000 to 2010, Celtic’s income was £670 million, Whereas Rangers’ was £568 million. However, and perhaps more tellingly, Celtic’s wages were £372 million, a quite high 55% of turnover, and Rangers’ wages were £343 million, a staggering 60% of turnover. Celtic lost £23.4 million in this period, and Rangers lost £126 million.

These losses are clearly very high for any business, but whereas a “normal” business would clearly take drastic measures and change their approach, a football club is different as they have far more committed stakeholders, who will not tolerate drastic changes and vast spending cuts.

What Rangers decided to do was set up Employee Benefit Trusts, which were aimed at reducing their gross wage outlay, whilst still ensuring that the net income of the players was what they wanted – and competitive for the market. These EBTs lent money to players, with the theoretical understanding that it was due to be repaid. This however didn’t happen, and Rangers seemingly didn’t actually intend, or expect the money ever to be returned. Rangers benefitted from not paying National Insurance on this money, and the players themselves didn’t pay income tax. The use of EBTs was originally sanctioned for non-employees, and that is the important distinction which applies to a lot of football tax and finance cases – are football players regular employees?

The main difference between a professional footballer and your garden-variety employee at most businesses, is that footballers work on fixed term contracts. They are committed to a certain period of employment, with no notice period from either side. Secondly, it is quite uncommon in other walks of life for employees to be bought and sold quite so frequently as footballers (or other sports stars).

These two factors however don’t change their fundamental employment status – employee. “Image rights” is an often used phrase denoting the payments a footballer receives through other media than just playing football; which can include sponsorships and endorsements, use of their image or signature, and similar.

There was an image rights case from the year 2000 – the player and club were both left as anonymous – which ruled that a footballer (or other sports person) could have separate income sources, one of them under their regular employment as a sportsman, the other as image rights – effectively them as a brand.

Many footballers in recent years have launched branded goods and merchandise, David Beckham being the most famous, certainly transcending football and being a household name in the UK. Typically, image rights are paid into a separate company, which can be partly or wholly owned by the player themselves, or their family or agents. Clearly, the advantage to the player for this is that they would pay corporation tax on this income, rather than the much higher rate of income tax – almost certainly at 45%. And as above in what Rangers were trying, the club wouldn’t have to pay National Insurance contributions as well.

Then there are other things to take into consideration. A professional footballer could very justifiably register their image rights company in a country other than the UK, perhaps even a tax haven. This is particularly likely given the very high percentage of non-British professional footballers in England, as well as the mercurial nature of football transfers meaning the player might not be in the UK for very long.

This isn’t just specific to football of course. There was a fairly recent high-profile case involving Formula One World Champion Lewis Hamilton, who avoided what would have been approximately £16 Million in tax had his plane been registered in the UK, rather than in the Isle of Man. Similarly, this doesn’t just relate to sport. The comedian Jimmy Carr also famously used a Jersey based tax avoidance scheme called K2. This reportedly allowed individuals to pay income tax at rates as low as 1%.

Quite often, the seemingly astronomical salaries of footballers quoted in the press include their image rights, endorsements and bonuses. So it is very difficult to actually work out what their gross earnings are (and indeed even harder to calculate their net earnings). According to Football Leaks, Alexis Sanchez of Manchester united earns a basic salary of £391,000 a week. Not only this, but he earns £75,000 as a bonus for every game he starts (a bonus for a footballer playing a football match!). He is also contractually bound to earn an additional £1.1 million a year bonus over his 5 years contract for his loyalty, as well as the prospect of a £1 million bonus if his team win the Champions League, £2 Million a year if he reaches a certain goals milestone, and £500,000 for winning the premier league.

All these bonuses and salary is quite obviously his financial remuneration and reward for being employed as a footballer, so is all eligible for tax according to HMRC regulation and law. However endorsements for wearing Nike boots, and for other brands such as Pepsi and Huawei, would be totally sperate, potentially being paid to different companies, under different ownerships. There is no suggestion at all of any wrongdoing by Alexis Sanchez to be clear, however this illustrates how complex the finances of a high level sportsman can be.

Whilst there are a lot of reported cases and accusations of tax avoidance, according to the BBC, the average Premier League footballer earns just over £2.6 Million annually, and the Premier League in England alone contributed £7.6 Billion to the UK economy during 2016-17. The players between them paid £1.1 Billion in tax in the same period. So clearly the waters are not as murky as some would make out.

One thing that is for certain however, is that football clubs and players do not operate above the law, and HMRC will surely be continuing to come down hard on any businesses or individuals who are operating incorrectly, or using inventive tax avoidance schemes to gain a competitive advantage.