By Paul Nicholson
October 12 – The number of players and football executives revealed as falling foul of UK revenue and customs authorities in the UK for investing in tax avoidance film funds is likely to be as high as several hundred, threatening bankruptcy for some and financial hardship for many others. It is a scandal made in the City of London but acted out in clubs across the country and not just in the Premier League.
The football names revealed so far are just the tip of the ice-berg in a tax investigation that has already bankrupted some players, including Rangers legend Gordon Durie, who did not have the money to pay tax demands.
Last weekend Wayne Rooney was revealed as facing a £3.5 million tax demand after investing in Invicta 43. England’s current manager Gareth Southgate was also hit with a large but undisclosed tax bills for similar investments. David Beckham and Gary Lineker have also been revealed as having invested in schemes. One lawyer Insideworldfootball spoke to said that any professional player earning a significant salary was considered fair game for these investment vehicles. The beauty of the players was that they were easy to get to.
An investigation by Scottish newspaper the Daily Record has listed a number of former Celtic players and club management linked to a £434 million tax avoidance scheme run by London-based Ingenious, who worked hand-in-hand with banks. They include former managers Neil Lennon and Martin O’Neil, chief executive Peter Lawwell and former players Bobby Petta, Chris Sutton, John Hartson, Stan Varga, Alan Thompson, Craig Bellamy and Johan Mjallby.
But the full scale of the schemes and the extent of their preying on cash rich footballers, often young players at the start of their careers or older players close to retirement, actually runs into billions of pounds of tax losses that HMRC is under a statutory duty to collect.
Under the film schemes a high-earning player might have invested £200,000, for example, enabling them to borrow another £800,000 to make their investment in the scheme £1 million. The investor could then claim tax relief on this amount (40% in 2007 when the Invicta scheme was launched) to shelter other income from tax over three years. The player is liable for tax on the full amount invested (cash plus loan).
But the amounts can be much lower with, for example, young players investing £20,000 from their first contracts, topping that up with an £80,000 loan that is ploughed into the fund and the making of the film. Or at least theoretically ploughed in.
Evidence is that banks making the loans placed the money in the film fund accounts, usually at the same bank, but those monies were more often than not never drawn down. In fact the money was often passed between accounts at the same bank in a circular loan, giving the impression that trade was taking place.
At the same time bank, accountancy, fund promoters, agency and various other intermediary commissions were deducted from the amounts invested (usually within 24 hours), leaving the investment greatly reduced, often by as much as 50%.
The players would have had no idea this was taking place, and might never have realised until HMRC begun issuing tax collection notices on players once it was ruled these schemes were illegal tax avoidance. Ultimately the tax has to be collected somewhere and even though the players would never have seen the hard cash of the loan taken out in their name, or understood the schemes they had invested in, they are still liable for the tax on the full amount (cash invested plus loan) that was in their name.
There are cases of some banks taking it even further, loaning money to players to secure further loans to get into the scheme in the first place.
In Rooney’s case the Times reported he paid in about £2.5 million in cash and borrowed another £10 million from the Bank of Scotland. Tax would eventually be paid on the income from the films in later years once they move into profit through the extended licensing cycle of the film, but in the initial years the films are usually loss makers and many never do make a profit.
The issue with the film funds is whether there was, in reality, ever any trading by the film funds with a view to making a profit. HMRC are taking the view that there wasn’t and all funds are under review.
Footballers caught up in the schemes are finding themselves between a rock and a hard place. When they invested the funds were not necessarily considered illegal (tax avoidance obviously was), but there were warnings about them being high risk and hence the tax advantages allowed. Prudent advisors would have suggested caution.
One leading tax lawyer questions the legality of the sale of these investments directly to the players. These funds were classed as financial vehicles that should only be sold to sophisticated investors in what should have been a highly regulated sales process. It clearly wasn’t which opens up questions about the job the government regulator was doing to protect investors.
It is understood thousands of schemes are being examined mainly relating to a period between 2002 and 2010. Over that time period they have preyed on and hit a whole generation of players. The funds, the banks and the individuals selling have all so far walked away with no liability. It is the players that are having to face the music – played to a tune they are generally not equipped to deal with or trained for.
It is only since 2010 that the UK government, in a desperate need to raise tax revenue, backward regulated the tax law to outlaw film schemes.
An HMRC spokesman said: “HMRC continue to challenge schemes that try to exploit tax reliefs. Avoidance does not pay. Most schemes simply don’t work and users end up having to pay all the tax due plus interest. Many will be worse off than if they had just paid the right tax up front.”
A spokesman for Ingenious, an operator of multiple film funds, said: “The film partnerships run by Ingenious have already generated over £1 billion in taxable income for the UK Treasury, with a further £1 billion to come over the lifetime of the films they funded.
“They helped bring movies like Avatar, Life of Pi, Best Exotic Marigold Hotel, The Girl with a Pearl Earring, Shaun of the Dead and Hot Fuzz to the screen and are clearly run for profit.
“HMRC have consistently failed to distinguish between commercial businesses and tax avoidance schemes and have … deemed all film arrangements to be tax schemes.”
That’s all very well but Ingenious aren’t the ones facing the tax bills but they did set up multiple schemes. Following Ingenious’ argument, once a film starts to make money then investors will see a return (on top of the tax advantage they were promised). One source told Insideworldfootball that the player investors are often so far ranked down the list of creditors that they have no chance of seeing any money back. “Footballers are being thrown to the wolves,” she said.
Related article: In June Insideworldfootball ran a column by Tessa Lorimar, Special Council, Withers’ Tax Investigations team, titled Film fund footballer investors should beware the hungry taxman. Read that column at http://www.insideworldfootball.com/2016/06/23/legal-film-fund-footballer-investors-beware-hungry-taxman/
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