: Sat Apr 04, 2009 5:31 pm
Smokey, I don't have the whole tale by any means, and I've had to be deliberately simplistic on here - for example, image rights are usually paid to personal service companies not to the player direct, and that in itself raises a whole load of additional issues for club and player (as any contractors on here using a PSC, and having to contend with IR35, will know!). And that's before you get into the question of overseas-registered PSCs...
All matters accounting and financial work on an "accruals" basis, where you have to account for costs and revenues in the periods to which they relate - not (necessarily) the periods in which they are charged. This means that if you paid image rights for (say) 2006 then any tax consequences relate to 2006, and if that means having to gross-up payments then that relates to 2006. Taken to the ultimate extreme, if the omission from previous years is very large then you'd have to restate your accounts for that year rather than reflect it in the current year. So logically you'd expect the salary cap - which after all reflects expenditure in a given (standard) financial year - to follow that. You'd have to recalculate the cap spend for that year. Otherwise, for example, a club could hide cap spend from the SC auditor until after the audit, and if it subsequently came to light then the club would get away with it - manifestly unfair.
I suspect any accountant looking at this issue would assume that the prior years' cap expenditure would need to be recalculated without a second's thought? Cos the accruals and matching concepts are drummed into us right from the start.
BUT...all that said, I don't for one minute think the RFL will seek to re-open prior years' calculations regarding payment of "excessive" image rights in lieu of salary. Firstly, because I suspect most clubs used the device (hence the reference to "at least ten clubs"). And secondly, as you rightly say, because the SC auditor will have been fully aware of the payments at the time, and obviously did not question or challenge them. Clubs could rightly (IMO) argue that since the SC auditor did not seem to be concerned about the potential tax exposure (and after all, this excessive image rights issue has been live for a few years now in other sports) then why should the clubs have been - for SC purposes anyway.
And I'd tend to agree with that argument, to be honest.
So whilst I don't agree with your first point, I agree totally with your second - to me, that argument is irrefutable.
As for this "spirit of the cap" thing, I agree that's probably bollox (except when it applies to the Pies...), although IIRC correctly the Operational Rules do make provision for trapping anything not specifically covered the substance of which is nevertheless to breach the cap rules - so its far from black and white there.
But the argument that it’s merely (and only) an attempt by clubs to help their employees with tax efficiency is surely debunked by the fact that (some at least) affected clubs still spent up to the cap? Therefore, the substance of what's been done is (yes) to remunerate employees in the most tax efficient manner, to thereby free up cap space (and funds) to spend elsewhere. More bang for your bucks, as I said earlier.
And there is nothing whatsoever wrong with that! Indeed, I applaud it. PROVIDED its legal. What this is all about is whether the amounts paid as image rights, relative to the total package and in particular relative to the direct Image benefits to the club, were reasonable (and legal) or excessive (and therefore tax evasion).
There is a second issue - the use of offshore arrangements regarding image rights and similar payments for overseas players (little scope for UK-domiciled players) to avoid tax completely. As far as I can tell that's all part of the investigations, and the scope for evaded tax is likely to be considerably higher. I suspect that far fewer clubs are implicated here, and this is where some big settlements could arise.
That's my (simplistic) take on it all, anyway!
