In 2019, HMRC confirmed ongoing enquiries into 198 footballers, 44 clubs and 29 agents. Such investigations have even seen footballers’ homes raided by inspectors. Last year, HMRC warned some 1,900 football agents of possible investigations following “serious allegations of fraud”.
So far, some of the biggest names – and the biggest tax bills – have arisen from HMRC’s rulings on film partnership schemes. In August 2019, HMRC took action against a £450 million tax avoidance scheme. Its investors included David Beckham and Gary Lineker. The scheme involved the financing of some 60 films. Despite HMRC’s ruling being vigorously challenged in what became the longest ever tax appeal tribunal hearing, the taxman ultimately won the day. Other well-known footballers have been affected by such rulings, including Wayne Rooney, who was reportedly facing a £6 million tax bill following the collapse of a film investment scheme in 2018.
Liability of advisers
Film partnership schemes were first introduced in 1997, with the aim of generating investment in the UK film industry. HMRC has recently clamped down on these schemes with retrospective rulings resulting in significant tax liabilities for investors. However, such investments were typically entered into on the advice of financial advisers, accountants and banks. The potential liability of advisers is now being tested in the courts.
It’s possible that some advisers may have failed to adequately anticipate the risk of future HMRC enforcement, or fully explain the risks to clients. In November 2019, 14 former footballers, including Andy Townsend, launched a £15 million legal action against St James’s Place, alleging that they had received inadequate advice concerning both film schemes and overseas property investment schemes. Steven Gerrard was one of a group of investors who launched a £100 million claim against HSBC’s private banking division as regards a film scheme. Andy Cole has sued Coutts bank after reportedly losing £8 million in a similar scheme, which had been marketed by the bank itself.
The significant number of footballers involved in such schemes is perhaps suggestive of something of a herd mentality. In the case of the footballers who invested, it may be that word of mouth amongst players helped to drive investment decisions. Few young footballers are financially sophisticated. Many found themselves with unexpected wealth at a young age.
Since players typically retire at the age of 35, the question of investing for the future has a particular urgency for footballers. In reality, few would have fully appreciated the mechanics or potential tax implications of such schemes. Many will have therefore relied greatly upon their advisers in terms of risk assessment.
Players’ agents and financial advisers would have been happy to facilitate such investments, given the commissions involved. Yet the investors will likely end up financially responsible for the fallout from adverse retrospective rulings, in the absence of actionable failings by their advisers.
High net worth individuals
The increased focus on footballers’ tax affairs came in the wake of a damning 2017 Public Accounts Committee report, which examined the effectiveness of HMRC’s enforcement against high net worth individuals, and tax evasion in the football industry. The report particularly highlighted the misuse of image rights.
HMRC’s image rights probe has been gaining momentum in recent years. In 2019, a HMRC spokesperson said that it “carefully scrutinises the individual image rights arrangements between football clubs and their players to make sure the right tax is being paid in the UK. We are carrying out visits to every Premier League club and most football league clubs, along with their players.”
A principle issue with image rights is whether the amount paid by a club in respect of such rights amounts to disguised remuneration. In 2019, a First-tier Tax Tribunal ruling held that image rights payments from a football club to an offshore vehicle constituted the player’s UK earnings for tax purposes.
As ongoing HMRC investigations continue, and footballers continue to take their advisers to court, the issue of tax avoidance in football looks set to continue to make headlines.