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BUSINESS BUSINESS BUSINESS BUSINESS BUSINESS BUSINESS BUSINESSamount of money they can spend on players, the City chairman says such control in Europe would make football throughout the continent a much more level playing field."I am a fan of the American model," he told the News of the World."The European model cannot be sustained without new parameters, commercial parameters that allow competition, that allow revenue distribution, and that will allow talent to continue to prosper."Equally supportive of such a salary cap, Sunderland Chairman Niall Quinn calls for a radical shake-up with hard-hitting penalties for clubs that don't play ball: "I think it is time for the Premier League - perhaps the chairman Sir Dave Richards - to think about how the clubs stop firing the money out to the players and the agents as fast as the chief executive Richard Scudamore can bring it in."The 20 clubs in the Premier League should make sure what has happened to Portsmouth can never happen again."What we should do is agree on a salary cap - wages should not exceed a certain percentage of our turnover."Anyone who breaks that should be docked points.NB Editor's Note: I would be very surprised if the leading clubs voted in favour of this as a collective- having established the Premier League as the most successful and financially rewarding in the world, I suspect clubs will not wish to surrender competitive advantage when it comes to luring the best players to sign for them. Adopting a salary cap based on club revenue will also clearly favour the established clubs with huge stadia and flourishing commercial operations, to the detriment of smaller clubs that have the ambition to challenge, and therefore to promoting competition.Watch this pagesOne structure certainly under attack by the Inland Revenue at present is the acquisition by clubs of image rights of their players. This has been common practice by elite clubs, particularly in the last decade to ensure that they can exploit the image of the players they employ to the maximum and to ensure that those players do not enter into commercial agreements that conflict with those that the clubs already have in place.These image rights payments are typically paid into a separate company set up for the player, which can also be incorporated outside of the UK, and which are therefore subject to Corporation tax at a much lower rate than the Income Tax and National Insurance which are paid on Players wages.Why do HMRC have an issue with this arrangement?Inspectors from HMRC have launched the investigation as they believe that payments made to Players for their Image Rights are actually a form of disguised remuneration and have allowed Players to escape paying over £100 million in tax. HMRC are arguing that these payments are in reality for the players on field activities and not off field activities as they are purporting to be. HMRC are believed to be actively investigating image rights deals of over 100 Premier League players. By way of example, a recent prospectus into Manchester United's financial and commercial arrangements has reported that HMRC are investigating the club in relation to image rights payments to several leading players and that HMRC are seeking repayment of approximately £5.3 million for the period 2001 to 2009, which they say relates to unpaid National Insurance contributions. What can players do?Sports Lawyer Tina Hardwick of solicitors Pitmans SK says: ''Due to the wide powers of HMRC, which can stretch back as far as 6 years, the consequences of these investigations can have a serious financial impact on both Clubs and Players. This includes the liability to pay tax and national insurance plus interest as well as penalties. Players should seek advice from specialist lawyers dealing with both the Tax and Sports Law issues. Any advice received from lawyers is legally privileged, it is protected and cannot be accessed by the HMRC Investigators, unlike the advice received by accountants and tax experts which does not have the same protection.''NB In a case highlighted by the fall into administration of Portsmouth FC, it is worth pointing out that these image rights structures set out above do not have the same protected status as players salaries should a club fall into administration. Sol Campbell for example issued a writ against Portsmouth FC for unpaid image rights monies and bonuses to the tune of £1.7 million- a sum which is now under serious threat given the clubs fall into administration.Tina Hardwick SolicitorEmail: THardwick@pitmanssk.comDD: + 44 (0) 20 7634 4626Taxman investigates image rights paymentsSPRING 201015

This April 2010 sees the introduction by the Government of a new higher rate tax band of 50%, applicable to individuals earning a salary in excess of £150,000 per annum- a figure which is significantly below the average salary level in the Championship, let alone the Premier League.RiskHowever, the tax profession have been careful to warn players of the risks should their advisers assist them with ways to avoid the new 50% tax band. There are several ways in which wealthy individuals have historically mitigated high rates of income tax, such as sheltering pay from income tax through property and other investments, and commonly through investment into film partnerships and other venture capital type investment schemes which allow investors to defer income tax and capital gains tax.In the immediate aftermath of the announcement of the tax hike, another more controversial scheme which was under discussion concerns the potential use by players and clubs of interest-free loans as part payment of wages- The benefit being that such loans are treated as a benefit-in-kind by HMRC and are taxed at 2.5%, thus resulting in a total tax liability of 42.5% as opposed to 50%. This scheme could however dramatically backfire as HMRC could potentially introduce retrospective legislation to block it and recoup the unpaid tax.Minimize the impactAndrew Davis of London-based Accountancy firm Davis Bonler summarises the key strategies available to players:are essentially four different strategies to minimize the impact of the new 50% tax band, as follows:1) accelerating income so that it is received before 06/04/10 - for example any bonuses due could be paid be paid before 06/04/10 and if cash flow is an issue the net bonus could be lent back and 'repaid' in accordance with the clubs 'normal' payment date for bonuses 2) deferring income so that it is received in a later year when tax rates will hopefully be lower - this has particular opportunities for those players who remain non domiciled in the UK and have substantial offshore income or investments could be structured so that tax deferral is possible such as Investment Bonds with drawdown facility.3) reducing taxable income such as salary sacrifice schemes or structuring investments with a capital return such as zero rated preference shares4) paying in such a way that remuneration is subject to lower capital gains tax rates or corporate tax rates such as use of share option schemes such as those involving the use of split interest or freezer shares - This might even encourage a return to the old days of player loyalty.Foreign transfer?Aside waiting and hoping that the Conservative Party will be elected into Government this summer and will return to a higher rate of tax of 40%, one final solution to be considered is a transfer to a foreign club in a jurisdiction with a more favourable tax system. For example, foreign players competing in Spain's top division for up to 6 years are liable for a higher rate income tax of 25 %, whilst in France it is 40%, in Italy 43% and in Germany 45%. Combined with a favourable sterling/Euro exchange rate an exodus to foreign climates may be an increasingly attractive proposition for British players.Editor: There are many ways with careful planning to mitigate the rise in tax rates but of course at all times players and clubs should be aware of HM Revenue & Customs crackdowns on such schemes and future changes that may reduce the effectiveness of such plans.BUSINESS BUSINESS BUSINESS BUSINESS BUSINESS BUSINESS BUSINESS50%tax rate?How players can seek to minimise the impact of the new higher rate tax bracket coming into force in April 2010£££16SPRING 2010