HMRC warns UK businesses about tax avoidance scheme
The scheme also disguises employment income as redeemable loyalty points, which the HMRC believes does not deliver the intended tax reliefs.
The company involved in the scheme claims the advertising expenditure is tax-deductible. However, at least 80% of this amount is returned to directors or employees as 'loyalty points'.
The scheme operates by purchasing 'advertising' from the promoter, claiming a deduction for the expense, and reclaiming value added tax (VAT).
Directors or associates then receive loyalty points, which are converted to cash on prepaid cards for personal use.
However, the HMRC contends that the advertising expense may not be an allowable expense for corporation tax purposes, as it might not be incurred wholly and exclusively for the business.
Additionally, the input VAT might not be recoverable, and the loyalty points could represent taxable income for the directors.
This is in contrast to air miles or credit card points acquired by employees, which may not be taxable.
The HMRC said it 'strongly advises' those using this or similar schemes to withdraw and settle their tax affairs.
It also suggested seeking independent advice or consulting with tax charities for help and guidance.
The HMRC also reminded scheme promoters of their obligations and potential sanctions for rule breaches.
This warning follows the HMRC's recent update to its international manual, which provides guidance on the tax treatment of lump sum pension payments under the UK's double tax agreements (DTAs).
The new guidance clarifies that, for most DTAs, lump sum and non-lump sum payments from pension schemes are generally treated similarly.
"HMRC warns UK businesses about tax avoidance scheme" was originally created and published by The Accountant, a GlobalData owned brand.
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New York Times
13 hours ago
- New York Times
Why do so many footballers go bankrupt?
It was the brown envelopes that kept falling through the letterbox that filled Dean Windass with foreboding. Windass was a spiky but effective striker whose 18-year senior career had taken him through all four divisions, including spells in the Premier League with Bradford City, Middlesbrough and Hull City, plus the Scottish top flight with Aberdeen. While he was never one of the game's superstars, he had earned good money at a time when English football was booming. Advertisement Yet, seven years after his 2009 retirement, Windass was effectively broke, his accounts emptied by a tax bill for £164,000 ($223,000 in today's exchange) — a legacy of an ill-advised investment in the movie industry — and a divorce settlement. 'I remember going to a pizza place and there was a couple ordering when we walked in,' Windass tells The Athletic. 'I read this lad's lips and he said, 'That's Dean Windass, he's just gone bankrupt'. It was embarrassing. 'You retire and you leave football behind. That's hard enough. To have this (bankruptcy) just made it worse. The stress was killing me.' Windass, though, is not alone. Former England internationals David James, Wes Brown and Lee Hendrie have all been declared bankrupt since ending careers which took them to the highest level, while His Majesty's Revenues and Customs (HMRC, the UK's tax authority) also filed a petition against Emile Heskey, the ex-Liverpool and England striker, over unpaid taxes totalling £1.6million last year. Just last month, former England player Trevor Sinclair was made bankrupt after 'burying his head in the sand' over a £36,000 tax debt. Soon after, another ex-England international, Shaun Wright-Phillips, was petitioned for bankruptcy by HMRC at London's High Court. A representative of Wright-Phillips told The Telegraph that he was unaware of the matter and promised it would be 'strenuously contested.' And they are just the recent ones. Jermaine Pennant, Celestine Babayaro, Chris Sutton, Asamoah Gyan and Royston Drenthe all had elite careers only to run out of money in retirement, while further back, Diego Maradona and Ronaldinho, two of the sport's all-time greats, fell on hard times once the lights went out on their careers. Every player in such circumstances will have a different story to tell, although there tend to be common themes: misguided investments, costly divorces or a lavish lifestyle that got out of hand. But why do many suffer these financial pitfalls, and what could football do to prevent it from happening so frequently? The England squad that won the Under-17 World Cup in India in 2017 looks more impressive as time has gone on. Led by attacking talisman Phil Foden, whose two goals inspired a 5-2 defeat of Spain in the final, that crop also included Marc Guehi, Jadon Sancho, Emile Smith Rowe, Conor Gallagher, Angel Gomes, Morgan Gibbs-White and Callum Hudson-Odoi — all beginning international journeys that would lead to England's senior ranks and some of Europe's biggest clubs. Advertisement Less celebrated, but just as important to the team's success, was Curtis Anderson. England's goalkeeper for six of their seven games at that tournament while in Manchester City's academy, Anderson quit professional football in 2022, at the age of 22, following the end of a two-year contract with EFL club Wycombe Wanderers, during which he never made a first-team appearance for them and was twice loaned out to non-League sides. There had been no way through at City before that, a club he had joined from north-west neighbours Blackpool as a schoolboy for £15,000, and a dwindling enthusiasm for the game led Anderson to study for a diploma in financial planning. 'A club can't give you financial advice, but in terms of education, young players get minimal support,' says Anderson, now 24 and head of sports financial planning at Markland Hill Wealth. 'We used to get talks from people when we were 16 or 17 about the importance of being careful with gambling, with alcohol, different things like that. I might be wrong, but I don't remember anyone coming in and talking about finance. 'The only education I got from within the club was my goalkeeping coach saying the odd thing. It wasn't financial advice, just a few little words about putting some (money) away and being careful. He was like a dad figure, trying to look out for you. It was never the club. It's a sticky subject.' Anderson has visited clubs in the Premier League and EFL in his new career and often finds footballers unsure of what to do with their wealth. Their wages will be spent on fast cars, big houses and expensive watches, but plans are not always long-term. 'A lot of the lads who buy into what we try to do are the ones who are a bit older,' says Anderson. 'Say they're 28 or 29, knowing they'd better do something. But they could've made their lives so much easier if they'd started off at 21. Advertisement 'I've been in to see clubs and academy players and I wouldn't ask or tell them to do anything. I would only ever say to think about these good habits now. You can get used to a lifestyle, and you never think it will end. That's what I'm seeing now. Even in the Premier League. I try to get simple concepts across, and it can be difficult because they've never had to think about it.' Soufyan Daafi can tell you a similar background story to Anderson. Two decades ago, he was in the youth setup at Dutch club Ajax, until the age of 16, playing alongside his close friend Kenneth Vermeer, a goalkeeper who made it all the way to become a full Netherlands international. Together, they founded Sport Legacy eight years ago and now look after the interests of over 100 athletes internationally. 'Education is the first part,' says Daafi. 'A lot of players have a certain lifestyle but once your football salary stops and you have to pay a mortgage and provide for your family, you will have a gap. 'There are also some people in the industry who take advantage of football players. People told me not to start because footballers are dumb, they spend all their money. I wanted to show them. I wanted to minimise the number of players going broke. My goal is to change the perspective by entering at the youth level, give education.' Neither Anderson nor Daafi would ever begrudge their clients spending their earnings, but both stress the need for a balance. Buying an expensive car is perhaps inevitable with the huge disposable income attached to a Premier League contract. As are the designer clothes and lavish holidays. Ryan Babel, the former Liverpool and Netherlands winger, knows that. 'I had my fair share,' says Babel, who now has an ambassadorial role for Sport Legacy in Dubai. 'I remember buying a Bentley when I was 21 and a Rolls-Royce when I was 25, but overall I didn't really spend too much money on cars. Advertisement 'It was more on the lifestyle. Going on a holiday, renting an expensive house, spending money on going out. The usual stuff. I also recall paying for everyone (among his group of friends) — every single thing. At one point, I had to put my foot down and say it wasn't Christmas every day. You become more mature and understand that it isn't sustainable.' Babel credits his parents for 'teaching him the value of money' while growing up. 'The game doesn't provide you with any know-how,' he says. 'It's your own responsibility to manage your finances. You don't always finish school because of the age you go into professional sport, so you don't complete your academic studies and know how to deal with a lot of money. That's often where it goes wrong for the guys. There isn't the guidance there. 'Some of these guys are like walking ATMs and the people around them know that. They want to enjoy the ride as much as they can. That's unfortunate, but it comes from a place where the players usually want to help others and feel acknowledged. 'But the sad reality is that once it's gone, you see the other people (in a player's entourage) disappearing. We know a lot of stories like that. You see their environment disappear. It's sad.' There are no official numbers that record the number of former footballers ending up bankrupt. Figures put forward by XPro, a charity for ex-players, suggested in 2013 it was a fate that befell three in five within five years of retirement but those numbers have been disputed. Gordon Taylor, when head of the Professional Footballers' Association (PFA), told the BBC he believed a more accurate figure was between '10 and 20 per cent'. Nobody, though, would dispute that the frequency of high-profile bankruptcy cases jars with playing careers where millions can be earned in a matter of months. It is estimated that Premier League players now make an average of over £100,000 a week in a division where the 20 clubs' combined wage bills climbed to £4.1billion in the 2022-23 season. Advertisement The numbers were smaller at the turn of the century but still insufficient to insulate some of the Premier League's most recognisable names. James, who won 53 caps for England and played for Liverpool, Manchester City, Aston Villa, West Ham and Portsmouth among others, was declared bankrupt in 2014 and forced to sell off his personal memorabilia collection. It was widely reported at the time that his divorce from wife Tanya had cost the former goalkeeper £3million in 2005. Hendrie, the former Villa midfielder, is another. HMRC filed a bankruptcy petition against Hendrie when he was still a player in 2012, with his financial worries contributing to depression and 'five or six' attempts at killing himself, according to an interview with The Guardian in 2020. 'My intentions were to look after my family and put my money into investments,' Hendrie told BBC Radio 4 the following year. 'But along the way, I had a divorce which hit me hard in the pocket and then I bought houses which turned out to be bad investments. It seemed like all the people advising me didn't have any answers. I had nowhere to turn.' Windass knows such stories well. He suffered his own struggles with mental health after ending his playing career, and his finances were placed under strain as he was pursued by HMRC. 'I was playing for Middlesbrough in 2001 and we had someone come to the training ground offering the chance to invest in the film industry,' says Windass, who was on £30,000 a week at the height of his career and now continues to pay HMRC £500 a month. 'I didn't know much about it but I looked on this form and there was every celebrity you could think of that was part of it. I'm thinking, 'If they've gone into it, I'll get involved'. 'I invested thinking that, after 15 years, I'd get this nice lump sum. The years went on and I kept getting these brown envelopes through the door. I was thinking, 'What the bloody hell is this?' To cut a long story short, I got a tax bill for £164,000. Advertisement 'I paid 40 per cent tax throughout my career when earning your big money. I wasn't a tax dodger, I just went into the wrong scheme. I look back now and obviously it was a bad decision.' Tax issues and misguided investments are often at the root of bankruptcy claims brought against former footballers. It was also HMRC that brought a case against former Manchester United and England defender Brown in 2023. 'When you're making a lot of money, you need the right people,' he told the Ben Heath podcast last year. 'And I would say that's something I didn't have.' 'Tax is a massive thing,' accepts Anderson. 'Maybe not really understanding what they need to be paying. It could be agents' fees, private medical insurance the club might have on you, these different things that will get factored into your tax code. If your everyday accountant isn't aware of it and five years later you get hit with a bill with interest and fines, you've got to find money quickly. And if you can't, that's how it will happen.' There are players who fight addiction on the road towards financial ruin, such as former Premier League and international stars Keith Gillespie and Paul Merson, but the high rate of post-retirement divorce is another recognised factor. Dividing wealth up has the potential to bring on financial challenges at a point in time when earning power has been diluted. Windass accepts that the split from his then-wife, Helen, took a toll. 'I lost a lot of money through my divorce,' says Windass, who has since rebuilt his life and is confidently taking on a dementia diagnosis from last year. 'That's my doing, that's my fault. 'I couldn't speak for other players because I don't know the stories but there's a high number of players who get divorced and then end up bankrupt. If it hadn't been for that investment and my divorce, I wouldn't have been in that position.' No two case studies are the same but the stories carry parallels that create a pattern. Millions can be earned and squandered. Only when the income ceases do the regrets come. 'How it happens and how to prevent it is more about having the right people around you,' says Anderson. 'I harp on about the education. You don't need to know everything, you just need to know you have to do something.' (Top photo design: Kelsea Petersen/The Athletic)
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Fewer people claimed non-dom tax status in UK ahead of Government crackdown
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