: Fri Apr 03, 2009 3:52 pm  

Adeybull wrote:

They aren't chasing the players.

They are chasing the clubs that paid them, and the PAYE that those clubs allegedly failed to deduct from image rights and similar payments.

Even if that is the case, though they have chased individuals before, I still don't see why they'd concentrate on overseas players. The tax avoided/evaded by a homegrown player in having some of his wages paid as image rights will be as much as an overseas player.

Believe me, they only care about UK tax avoided.

: Fri Apr 03, 2009 4:37 pm  

Billinge_Lump wrote:

Even if that is the case, though they have chased individuals before, I still don't see why they'd concentrate on overseas players. The tax avoided/evaded by a homegrown player in having some of his wages paid as image rights will be as much as an overseas player.

Believe me, they only care about UK tax avoided.

I do believe you - spent 34 years dealing with the buggers...

But I think you are missing the point?

It IS UK tax that's been avoided (or evaded).

This is my take - a mixture of knowledge, educated guessing and supposition - on the position. Anyone with more specific facts on this please feel free to amend or improve my analysis:

As far as I am aware, you can't avoid tax by the club paying some of a UK-(tax)resident player's salary in the form of Image Rights. I'm not sure whether the onus is on the club to deduct tax under PAYE, or on the player to declare the income separately on his tax return and pay tax separately (which avoids NIC so can lead to a modest saving for club and player). I've come across both treatments in a different setting, but I'm not sure which one applies here. But either way, HMRC gets the tax (if not necessarily the NIC, which is an issue but less so - see below).

But for overseas players, its a bit bit different. If the money is paid after they cease to be UK resident, and into an offshore account, then the argument went that there was no liability at all to UK tax. Therefore the player could pick up the funds from the offshore account tax-free. And if he did so before arriving back in his home country where he would then become resident for tax purposes, then there would be no liability to tax there either (irrelevant to HMRC but highly relevant to the player).

That's why its overseas players that are the biggest targets. Its only players transferring from one tax jurisdiction to another that could avoid tax completely using the Singapore Parachute - as long as the timing was spot-on. The fact that many flights back to the antipodes (including ones I have been on) transfer at the superb airport in Singapore gives the tactic its name.

What HMRC have been arguing, as I understand it, is that the image rights (or whatever else its described as) income is earned not at the point of payment but over the period of the player's contract. Therefore a liability to UK tax arose while the player was still UK-resident. Its THAT tax - almost certainly at 40/60 = 67% of the net payment - that HMRC argues has been avoided, and they are now seeking to recover.

And the clubs most at risk would likely be the ones with expensive or numbers of overseas players who have also availed themselves of the Singapore Parachute - I suspect only a few.

I said earlier that payment of part of a package in the form of image rights might avoid/evade NIC if structured right. I don't know this for sure but I assume it to be so. Therefore, once the tax issue has been resolved by HMRC I'd also expect them to be targeting this avoided/evaded NIC. I am assuming that this 15%-of-package maximum as image rights is their approach to recovering NIC on what HMRC see as excessive image rights component, whilst accepting that reasonable image rights payments can still be made. That could affect all clubs with players subject to image rights deals. You are probably talking a maximum of 13.8% of the value paid here - 12.8% payable by the club and 1% deductible from the player but recoverable from the club.

I suspect that the "at least ten clubs are thought to be affected" comment reflects more this second issue. I don't know for sure - its my supposition.

Of course, for overseas players that's on the grossed-up-for-tax amount, so (if I calculate it right) a payment of £100k in image rights free of tax COULD mean another £91k tax and NI bill (most of which would also rank for salary cap) levied on the club.

And if the image rights are paid by an "unconnected" third party, as I presume happened with Scully and Gillette, then its a different scenario again!

: Fri Apr 03, 2009 6:31 pm  

Adeybull wrote:

I do believe you - spent 34 years dealing with the buggers...

But I think you are missing the point?

It IS UK tax that's been avoided (or evaded).

This is my take - a mixture of knowledge, educated guessing and supposition - on the position. Anyone with more specific facts on this please feel free to amend or improve my analysis:

As far as I am aware, you can't avoid tax by the club paying some of a UK-(tax)resident player's salary in the form of Image Rights. I'm not sure whether the onus is on the club to deduct tax under PAYE, or on the player to declare the income separately on his tax return and pay tax separately (which avoids NIC so can lead to a modest saving for club and player). I've come across both treatments in a different setting, but I'm not sure which one applies here. But either way, HMRC gets the tax (if not necessarily the NIC, which is an issue but less so - see below).

But you can avoid tax in this way. The image rights are paid to a private company, corporation tax is less than income tax, and it can be reduced to nil with the addition of expenses. If that company is based overseas, then that gives even more scope for tax avoidance.

But for overseas players, its a bit bit different. If the money is paid after they cease to be UK resident, and into an offshore account, then the argument went that there was no liability at all to UK tax. Therefore the player could pick up the funds from the offshore account tax-free. And if he did so before arriving back in his home country where he would then become resident for tax purposes, then there would be no liability to tax there either (irrelevant to HMRC but highly relevant to the player).

That's why its overseas players that are the biggest targets. Its only players transferring from one tax jurisdiction to another that could avoid tax completely using the Singapore Parachute - as long as the timing was spot-on. The fact that many flights back to the antipodes (including ones I have been on) transfer at the superb airport in Singapore gives the tactic its name.

I don't think the Singapore Parachute has much to do with this case really. Whilst I accept that it does save the player from paying any tax at all, that won't concern HMRC, only that UK tax is being avoided. If they picked up the money when they landed in Brisbane and paid Australian tax then HMRC would still be chasing them.

What HMRC have been arguing, as I understand it, is that the image rights (or whatever else its described as) income is earned not at the point of payment but over the period of the player's contract. Therefore a liability to UK tax arose while the player was still UK-resident. Its THAT tax - almost certainly at 40/60 = 67% of the net payment - that HMRC argues has been avoided, and they are now seeking to recover.

But surely that argument has already been won in the Agassi case, and that was in 2004? IMO again (I'm no expert in tax issues), it's more a case of HMRC trying to say that the image rights are emoluments of employment.

And the clubs most at risk would likely be the ones with expensive or numbers of overseas players who have also availed themselves of the Singapore Parachute - I suspect only a few.

I said earlier that payment of part of a package in the form of image rights might avoid/evade NIC if structured right. I don't know this for sure but I assume it to be so. Therefore, once the tax issue has been resolved by HMRC I'd also expect them to be targeting this avoided/evaded NIC. I am assuming that this 15%-of-package maximum as image rights is their approach to recovering NIC on what HMRC see as excessive image rights component, whilst accepting that reasonable image rights payments can still be made. That could affect all clubs with players subject to image rights deals. You are probably talking a maximum of 13.8% of the value paid here - 12.8% payable by the club and 1% deductible from the player but recoverable from the club.

I suspect that the "at least ten clubs are thought to be affected" comment reflects more this second issue. I don't know for sure - its my supposition.

Of course, for overseas players that's on the grossed-up-for-tax amount, so (if I calculate it right) a payment of £100k in image rights free of tax COULD mean another £91k tax and NI bill (most of which would also rank for salary cap) levied on the club.

And if the image rights are paid by an "unconnected" third party, as I presume happened with Scully and Gillette, then its a different scenario again!

I'd presume the 3rd party payments would have nothing to do with the clubs.

: Fri Apr 03, 2009 6:57 pm  

Billinge_Lump wrote:

But you can avoid tax in this way. The image rights are paid to a private company, corporation tax is less than income tax, and it can be reduced to nil with the addition of expenses. If that company is based overseas, then that gives even more scope for tax avoidance.

True enough - and its often done that way - I was trying to keep it simple. The player of course has to receive some benefit for assigning his rights to a company, so there will still be taxable income to the player arising somewhere, even if as dividends.

Billinge_Lump wrote:

I don't think the Singapore Parachute has much to do with this case really. Whilst I accept that it does save the player from paying any tax at all, that won't concern HMRC, only that UK tax is being avoided. If they picked up the money when they landed in Brisbane and paid Australian tax then HMRC would still be chasing them.

But the SP mechanism allowed the UK club to defer payment until after the player had left the country (so avoiding/evading UK tax) AND also ensure the player was not taxed on his return to Brisbane. The latter bit is essential for the player to accept it, and the former bit is essential for the UK club to reduce its cost without reducing what the player receives. That's why its very relevant. If the offshore payment was made while the player was still on the club's payroll, its unlikely the player would escape being taxed on it. So the only time it could be paid free of tax at both ends is when the player is in transit home.

Billinge_Lump wrote:

But surely that argument has already been won in the Agassi case, and that was in 2004? IMO again (I'm no expert in tax issues), it's more a case of HMRC trying to say that the image rights are emoluments of employment.

That's exactly right - it does seem to be precisely what they are doing. Or, more to the point, that "excessive" image rights amounting to more than 15% of salary are really emoluments dressed up as something else.

Billinge_Lump wrote:

I'd presume the 3rd party payments would have nothing to do with the clubs.

Me too, and so should not be an issue for salary cap. UNLESS of course the dumbass club lets the third party place a one-off cheap advert in a programme, which then makes that third-party "connected" under the salary cap rules and you get a breach. Which, funnily enough, was the principal reason for the Bulls' breaches...

: Fri Apr 03, 2009 7:30 pm  

I haven't a flippin clue what people are on about in this thread. I can't even understand my own tax code. But it does sound like this could turn out to be a hefty bill for Saints and I'm feeling a bit worried. Should I feel a bit worried? Could this undermine our plans for the future?

I guess the government has to rake back all that money it happily gave to the banks to bolster their fat cat bonuses.

: Fri Apr 03, 2009 8:00 pm  

SaintsFan wrote: :EH: I haven't a flippin clue what people are on about in this thread. I can't even understand my own tax code. But it does sound like this could turn out to be a hefty bill for Saints and I'm feeling a bit worried. Should I feel a bit worried? Could this undermine our plans for the future? I guess the government has to rake back all that money it happily gave to the banks to bolster their fat cat bonuses. And you reckon we do...? A sound guy on the Bulls board could have saved me a load of hassle had he posted this link before: These guys explain the image rights background pretty well, if not the tax consequences of allocating too much salary as "image rights" I doubt it will undermine anyone's plans for the future as I'm sure all clubs have been planning for the implications for some time (and if not they have been incredibly naive). It could lead to some hefty tax bills for the worst offenders, although provided you have a wealthy owner I doubt the impact will be life-threatening. Although theoretically it could mean retrospective salary cap breaches, I can't see the RFL being able to pursue that especially since full disclosure will have been made to the Salary Cap Auditor. It MAY cause some difficulties over the interim "messy" period regarding existing players. That's my personal prognosis anyway.

SaintsFan wrote: :EH: I haven't a flippin clue what people are on about in this thread. I can't even understand my own tax code. But it does sound like this could turn out to be a hefty bill for Saints and I'm feeling a bit worried. Should I feel a bit worried? Could this undermine our plans for the future? I guess the government has to rake back all that money it happily gave to the banks to bolster their fat cat bonuses. And you reckon we do...? A sound guy on the Bulls board could have saved me a load of hassle had he posted this link before: These guys explain the image rights background pretty well, if not the tax consequences of allocating too much salary as "image rights" I doubt it will undermine anyone's plans for the future as I'm sure all clubs have been planning for the implications for some time (and if not they have been incredibly naive). It could lead to some hefty tax bills for the worst offenders, although provided you have a wealthy owner I doubt the impact will be life-threatening. Although theoretically it could mean retrospective salary cap breaches, I can't see the RFL being able to pursue that especially since full disclosure will have been made to the Salary Cap Auditor. It MAY cause some difficulties over the interim "messy" period regarding existing players. That's my personal prognosis anyway.

: Fri Apr 03, 2009 8:52 pm  

Adeybull wrote:

But the SP mechanism allowed the UK club to defer payment until after the player had left the country (so avoiding/evading UK tax) AND also ensure the player was not taxed on his return to Brisbane. The latter bit is essential for the player to accept it, and the former bit is essential for the UK club to reduce its cost without reducing what the player receives. That's why its very relevant. If the offshore payment was made while the player was still on the club's payroll, its unlikely the player would escape being taxed on it. So the only time it could be paid free of tax at both ends is when the player is in transit home.

Would that not depend on the type of payment though? If it's a company to company payment rather than a payment directly to the player, would the timing of the payment made by the club really make a difference? If so, how do Tesco and the like do it to reduce their tax bills by having companies in jersey, etc?

Would it not be the case that the call in Singapore is more to do with avoiding tax in Australia rather than in the UK? So the player had to transfer it to his Australian account before he got back to Aus to save the tax there, rather than actually receiving it when he is out of this country?

Again harking back to what I can find on the Agassi case, in this case an Independent report from 2004:

The Independent wrote:

Mr Justice Lightman ruled that under sections 555 and 556 of the 1988 Taxes Act relating to entertainers and sportsmen, tax was due on income connected with activities in Britain, even if the paying and receiving companies had no tax presence here.

that means that they'd never get away with paying actual wages or appearance money without it being taxable surely?

: Fri Apr 03, 2009 9:37 pm  

Adeybull wrote: These guys explain the image rights background pretty well, if not the tax consequences of allocating too much salary as "image rights" That's a great link, adeybull, thanks. I'm still worried but at least now I am worried with a little bit more understanding! And I just loved this line: A few years ago I saw the “image right” paperwork of one Guinness Premiership club that were quite vulnerable to an Inland Revenue attack Do you think they might have used dirty bombs or just plain old shotguns?

Adeybull wrote: These guys explain the image rights background pretty well, if not the tax consequences of allocating too much salary as "image rights" That's a great link, adeybull, thanks. I'm still worried but at least now I am worried with a little bit more understanding! And I just loved this line: A few years ago I saw the “image right” paperwork of one Guinness Premiership club that were quite vulnerable to an Inland Revenue attack Do you think they might have used dirty bombs or just plain old shotguns?

: Sat Apr 04, 2009 6:38 pm  

Billinge_Lump wrote:

Would that not depend on the type of payment though? If it's a company to company payment rather than a payment directly to the player, would the timing of the payment made by the club really make a difference? If so, how do Tesco and the like do it to reduce their tax bills by having companies in jersey, etc?

Would it not be the case that the call in Singapore is more to do with avoiding tax in Australia rather than in the UK? So the player had to transfer it to his Australian account before he got back to Aus to save the tax there, rather than actually receiving it when he is out of this country?

Again harking back to what I can find on the Agassi case, in this case an Independent report from 2004:

that means that they'd never get away with paying actual wages or appearance money without it being taxable surely?

I THINK...and as I have said elsewhere my expertise isn't really in international personal tax, that its all down to firstly domicile and secondly (and as you have already observed) the use of overseas-registered personal service companies.

Yes, for sure, the call from Singapore to get the money back to Oz before the player is essential to avoid Oz tax - as far as I can tell. I THINK - but I can't be sure - that the timing of the payment TO the PSC is important if the IR35 conditions are to be met. Or , more to the point, if they cannot be met which means that the payments TO the PSC would rank as emoluments under the UK tax code. But, and in any case, if the player is in transit on the way back he is domiciled in Australia but not actually resident anywhere. So that in those circumstances no tax liability arises on the payment TO the PSC, nor does one arise when the PSC pays the belated salary to the player while he is in transit, as escapes both UK and Oz tax.

Hence the importance of the timing, and the Singapore Parachute.

But most of this is educated guesswork on my part, and I'd really love someone to clarify this bit!

As for Tesco, the Jersey company scheme is more to do with avoiding or saving VAT IIRC. Its not the same as the reasons for using a PSC.

: Sat Apr 04, 2009 11:05 pm  

Adeybull wrote:

I THINK...and as I have said elsewhere my expertise isn't really in international personal tax, that its all down to firstly domicile and secondly (and as you have already observed) the use of overseas-registered personal service companies.

Yes, for sure, the call from Singapore to get the money back to Oz before the player is essential to avoid Oz tax - as far as I can tell. I THINK - but I can't be sure - that the timing of the payment TO the PSC is important if the IR35 conditions are to be met. Or , more to the point, if they cannot be met which means that the payments TO the PSC would rank as emoluments under the UK tax code. But, and in any case, if the player is in transit on the way back he is domiciled in Australia but not actually resident anywhere. So that in those circumstances no tax liability arises on the payment TO the PSC, nor does one arise when the PSC pays the belated salary to the player while he is in transit, as escapes both UK and Oz tax.

Hence the importance of the timing, and the Singapore Parachute.

But most of this is educated guesswork on my part, and I'd really love someone to clarify this bit!

As for Tesco, the Jersey company scheme is more to do with avoiding or saving VAT IIRC. Its not the same as the reasons for using a PSC.

Hmm, I thought it was more Corporation Tax, but I'm not overly sure. We digress anyway.

Whatever the details are , I suspect Saints will end up with a big whacking tax bill though.