19 January 2011

No one is obliged to arrange their tax affairs so as to maximise the return of the tax authorities.

  Using loopholes to reduce one's exposure to tax is called tax avoidance.  You have to be well off to hire the tax lawayers and accountants to advise you how to do it.    Attempting to avoid tax that would be lawfully levied on you is called tax evasion.   There is something of a grey area in between to, but what it can mean is that a person in the median income range can pay a higher proportion of their earnings in tax than someone who is much wealthier.

According to an article in the Sunday Times yesterday, top Premiership players including Wayne Rooney and Gareth Barry are avoiding millions of pounds in tax.   Some are paying as little as 2 per cent tax in earnings.   In part the story is not a new one as it covers payments in respect of so-called image rights which we had dealt with before on this page.

Players have two contracts with their club, one as a player receiving the salary and the other for the earnings from shirts with their names or if their ugly mugs are used on merchandise.   Royalties are paid into a company owned by the player which the pays corporation tax at 28 per cent rather than the marginal income tax rate of 50 per cent.

Players such as Rooney have also taken advantage of a tax loophole created by the Labour Government in 2007.   Companies can lend large sums of money to their directors which are then classified as a benefit in kind and taxed at 2 per cent.

Revenue and Customs lost a test case on image rights in 2000 involving Dennis Bergkamp and David Platt.   They may be on stronger ground in challenging the use of loans.   They could argue that the loan is a sham, particularly if there are no arrangements to pay it back, and insist that it be taxed accordingly.   Uefa is also interested in these arrangements as part of its financial fair play drive.

A  spokesman for Rooney said, 'Everything Wayne's companies do is legitimate and within the letter and spirit of the law.'   The average football fan struggling with frozen wages, rising bills and higher taxes may not be impressed.{jcomments on}

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