HMRC 2 - Football 0

Published 31 January 2010 By: Mark Hovell

Her Majesty’s Revenue and Customs seem more interested in Football than the average punter – there are currently challenges to agents’ payments, both for VAT and PAYE; to image right structures; and to testimonial receipts.


imagesHowever, at present the challenge that’s making the most news is to the Football Creditor Rule (“the Rule”). Over the last few years the Revenue have simply





petitioned for the winding up of clubs if they fail to pay their taxes on time – and some may say that’s quite right too, but it does appear that

the Revenue is making an example of football when compared to other industries.




What is the Football Creditor Rule?

Basically, if a club undertakes a formal insolvency procedure (usually administration) its membership of or share in the League is suspended and this suspension won’t be lifted until certain creditors of the club (the FA, the Leagues, other clubs, employees for arrears of wages, the PFA for loans and some other members of the Football ‘family’) are settled in full. 

As we’ve seen at Portsmouth, even if there’s no formal insolvency procedure, the League can deduct monies due to the club from central funds, comprising television monies and the like, to settle these creditors. 
Why does the Rule exist? 

It’s all to do with “the integrity of the competition” – all clubs are members of a League, a company in which each club has 1 share. The League’s respective constitutions contain a duty for its members to act in good faith to each other, so it’s felt that to allow one club to “buy” a player from another, but not pay for him or to not pay him, distorts that competition. 

The Rule has been tested by HMRC in the Wimbledon case, and it survived the challenge. 

So why do the Revenue object? 

Since the Enterprise Act, the Revenue have lost their status as a preferential creditor and joined the ranks of unsecured creditors in an insolvency situation. They believe the Rule gives those creditors “super creditor” or “pre-preferential” status and that all creditors defined as unsecured creditors under Insolvency Legislation, should get paid the same. 

Is it such a big deal?! 

When read in isolation, the Rule seems unfair to many, including HMRC. However, it is only one part of the League’s Regulations and the Football League has an additional Insolvency Policy too. 

The Policy and Regulations actually seriously benefit HMRC. 

Firstly, the League has introduced “HMRC Reporting” for PAYE. So, if a club gets behind in paying their PAYE, the League places an embargo on that club, which stops it spending on more players and compounding its financial problems. Many clubs in the past have looked to “buy” their way out of trouble – for example, in 2000 and onwards many clubs started selling and leasing back players, which added huge finance repayments to their overall debt. The Football League have already reported that indebtedness to the Revenue by their members is reducing partly as a result of these measures. 

Secondly, the Football League, where all the football insolvencies have been to date, also insist that any club going into administration or receivership, has to either pay all its non-football creditors in full or compromise with them, through a CVA or, infrequently, through a S. 425 Companies Act scheme of arrangement. 

This hands “power” to the Revenue where they hold more than 25% of the unsecured votes cast. Basically, they will look to block any arrangement where the Football Creditors are paid in full and the Revenue are not. It’s put those clubs in an impossible position – either don’t pay Football Creditors, but face losing its share in the League (although to date, the sanction has been an additional points deduction) or face having the CVA blocked by HMRC. 

In other sports, such as Rugby, the requirement for a CVA doesn’t exist and the Administrator simply sells the business and assets to a newco, which, so long as it pays the Rugby Debt, can look to get the RFU membership transferred. 

Thirdly, with the normal administration exit in Football being a sale of the oldco’s business and assets to a newco, the players (and other employees) and their arrears transfer to newco under TUPE. So, in the main the Football Creditor rule acts to stop one club acquiring players off another club, without paying for them and to protect against a “domino” affect within the game. 

All in all, the Football authorities have done their best to keep the playing field level for all, including the Revenue, and have given the Revenue additional protection – but all that said, the Revenue will have the last laugh as the 50% tax looms. 

Partner in the Commercial Department specialising in sports law. Acts for various professional footballers, rugby players, basketball players, athletes and other sports people on contractual, employment, taxation and insolvency-related matters. Advises the Professional Footballers' Association and many other players' and athletes' associations on commercial and trade union-related matters. Mark also advises the Professional Players' Federation. Recently developed a niche, advising the players at football and other sporting clubs in financial difficulties, most notably this year Darlington, Stockport and Chester Football Clubs, London Welsh Rugby Union, Coventry Rugby Union and Celtic Crusaders Rugby League clubs. Also an international arbitrator sitting at the Court of Arbitration of Sport in Switzerland, this year having resided over contractual disputes and drug appeals in football and women's basketball.

The Insolvency Department is renowned for its turnaround and insolvency work with football clubs, and has developed its offering for formal corporate and personal insolvencies in other sectors. It counts Begbies Traynor and Tenon amongst its key clients, and has acted for the Professional Footballers' Association for over 45 years, most recently on the administrations of Luton Town FC, AFC Bournemouth, Rotherham United and Darlington FC. To visit the website please click here.


Mark Hovell

Mark Hovell

Mark is a partner and the head of the sports team at Mills & Reeve LLP.

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