The tax man is watching and he’s not going to let clubs go…

By Tony Attwood

There are arrangements in place in the UK through which all companies can hold back on making their monthly tax payments to the government, where they have been affected by issues relating to the advent of the coronavirus.

Under a system known as Pay As You Earn (PAYE) companies are obliged by law, to deduct two tax payments from the salaries of staff, each time the staff are paid, and then hand that money over to the state a month later.

Now in order to help companies that have seen their income fall dramatically because of the shut down of businesses and industry at the behest of the government, the state has agreed that these tax payments can be held back for a second month, so that companies have a greater chance of being able to keep staff on their books, paying their staff, and then finding a way of getting the money in to pay the state.

It is also being reported (one might even say “reportedly” but I have no idea whether the statements are true or not) that many football clubs have taken advantage of this offer from the government.

But although the offer from the government came, it seems, without any restrictions, the Inland Revenue and Customs (the government department that collects taxes) has now indicated that clubs which have taken advantage of the dispensation and have deferred PAYE payments, have been warned that if they then are seen to be spending money on transfers (which are deemed by the state as non-essential spending at this time) the state will demand immediate payment in full of all outstanding PAYE money.

Now given that salaries are, in most clubs’ cases, the biggest expense that they have, the PAYE sum can be enormous.   All Premier League players will be paying around 40% of their salary in tax, plus a further 2% in national insurance.

So a player earning £200,000 a week will be paying something like £84,000 in tax and national insurance.  Now it is also reported on the internet (and goodness knows how true this is) that the average weekly earning of a Premier League footballer is £240,000 a month.

Leaving aside the youth players most clubs have around 25 first team players on their list of eligible players for the season, so that would mean a monthly tax bill of £2,520,000 that it has to send to the Revenue and Customs.   What the state is saying is that if any money is overdue to the Revenue where the club is seen buying a player in the next transfer window, HMRC could take action, because deferrals of tax payment can only be made with the overt permission of HMRC, and that permission always comes with conditions.

And those conditions include careful management of expenditure, which HMRC now says means “not making new transfer purchases”.

Now most transfers are paid for over a three of four year period, and payment of those transfers arranged in the past will still be allowable – but no new ones.   If a club does buy a player, then the arrangement to defer tax becomes nullified and the club is liable for all outstanding tax immediately.

It has been quite a while since the Revenue would do its swoops onto League One and League Two clubs, demanding money which was outstanding, but the report suggests that when it comes to Premier League and Championship clubs which have been earning megabucks through TV fees, no exceptions will be made and fines in terms of interest payments will be implemented.

Failure to pay those will result in winding-up orders.  The clubs, it seems, have been warned.