HM Revenue & Customs (HMRC) has demanded Premiership football clubs pay £100 million on behalf of their players who are using a tax loophole to pay just 2% tax on some of their earnings.
Manchester United’s Wayne Rooney, who earns £200,000 a week, has saved over £600,000 in the past two years, according to a report in The Sunday Times. Manchester City’s Gareth Barry avoided paying £135,000 in tax.
However, HMRC is now reviewing the loophole which has allowed 55 players to pay tax at just 28% on the earnings from the image rights.
Chelsea defender Ashley Cole, Manchester United’s Rio Ferdinand and Michael Owen are just some of the footballers that launched their own companies to take image rights payments after the 50% income tax rate was introduced.
The loophole sees the players sign two contracts with their clubs. They sign a players contract and another contract for the royalties paid from merchandising and image rights.
The latter is paid into a separate company which is only liable to pay 28% corporation tax rather than income tax.
Players are also able to take loans from their companies and pay only 2% tax on the sum which is regarded as a benefit in kind. Some footballers have taken out up to £1 million to top up their salaries and Rooney has taken £1.6 million from his company over the past two years.
If Rooney taken the loan as income he would have been liable to pay tax at 40%, a total of £622,802, but instead paid just £25,511.
Peter Fairchild, a partner at accountants Begbies Traynor, which advisers sportspeople, said: 'In tax terms taking a director's loan from an image rights company is very, very efficient.'
HMRC confirmed it was looking at directors' loans from players' companies.
'HMRC are well aware of attempts to use image rights as well as other schemes to avoid the 50% rate of tax'
So what do we think? Do we think that players are right to use these loopholes to keep hold of their money or do you think they should just pay up to the taxman?
Personally I think that as long as these loopholes exist players will exploit them, especially since the taxman wants 50% of their earnings and nobody likes handing over huge sums of money that they could spend on better things ...