'Calamitous' prospects for footballers who invested in tax schemes
Some professional footballers who invested in film partnership tax avoidance schemes that were later challenged by HM Revenue & Customs (HMRC) are facing 'calamitous' financial consequences.
According to Daniel Northall, a specialist employment lawyer at Littleton Chambers, successful footballers can earn large amounts but only for a limited number of years and in looking to plan for the future, invested in these schemes which 'may have been sold to investors as an entirely legitimate and safe means of shielding earnings against income tax'.
Some are now facing financial ruin through their involvement in film tax relief schemes such as Eclipse 35, now defeated by HMRC in the England & Wales Court of Appeal. The consequences are devastating: the investors not only have to pay income tax they thought they had avoided, but also tax on income received by the partnership under the film licensing agreement, even though they never received any of this 'income'.
Worse, says Northall, the high debt-to-equity ratio in financing the partnership means that tax payable on partnership income may far exceed tax to be paid as a result of the loss of tax relief on other income. Few investors could have predicted this outcome, says Northall.
'In some cases, an investor's [ultimate] tax bill may be ten times their original capital contribution', he notes. 'The more that has been invested, the more ruinous the tax bill, and this will spell bankruptcy for many.'
The situation for these individuals was significantly worsened by HMRC's new power to issue accelerated payment notices, demanding up-front payment even where the tax dispute has not been settled by a tribunal or court.
The only real opportunity for these footballers to recover some of their losses is to sue their advisors for mis-selling, adds Northall. However, they will only receive compensation if they demonstrate a material misrepresentation or negligent advice, and then only if the claim is not time-barred by the six-year rule. Film partnership schemes were at their most prevalent in 2005 – 2007, so most footballers seeking compensation will be met with the defence that their claim has been brought too late.
Even if they overcome these hurdles, some may find that the relevant advisor is no longer solvent or was not insured.
Investors in these schemes may now have several fires to fight at once, including responding to an accelerated payment notice, fending off a bankruptcy petition, investigating the strength of a claim against earlier advisors and issuing proceedings in order to protect their position, says Northall. 'It has been reported that many footballers are too embarrassed to speak about the position in which they find themselves', he says. 'They would be well advised to swallow their pride and to consult lawyers as soon as possible.'
- Littleton Chambers
- Daily Mail
- Law in Sport
- STEP UK news story (3 August 2015): Judicial review defeat for Ingenious Media investors over accelerated payment notices
- STEP UK news story (19 February 2015): Eclipse 35 film partnership loses at Appeal Court
- STEP UK news story (29 January 2015): Bankruptcy threat to tax-planning footballers
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