Rangers Football Club (RFC) in Glasgow and Lionel Messi in Spain, have both been in the news of late because of apparent income tax breaches.
RFC had an idea, through an Employee Benefit Trust named the Remuneration Trust, of giving players money as a loan. The U.K. tax authority believed that this was not correct as the players were simply receiving their pay therefore tax and national insurance contributions (NIC) should be deducted. In addition, the employers (RFC) were not meeting their NIC obligations either.
The U.K. Supreme Court found against RFC recently in early July and agreed that this was a remuneration scheme and not a loan facility. The players and club would have to pay the requisite amount of taxes.
Lionel Messi has had a similar experience, with an additional problem. He has been convicted of tax fraud and sentenced to imprisonment. This imprisonment was suspended and eventually commuted by Messi paying an increased fine of Euro 250,000. This was in addition to the Euro 2 million fine initially imposed. However, this is equivalent to only three days of his current earnings!
So, the club and the player have been named and shamed. However, the advisers have not. Why is this?
- Is it the club and players who contrive these schemes or is it the advisers?
- What penalties do such advisers suffer?
- What happened to the ethical stance required by lawyers, accountants and other professional individuals?
- Would an ordinary person also be allowed to pay a fine equivalent to three days earnings to eliminate a prison sentence? This would probably be around £300 – £400.
So, various points arise;
- The social inequality of the treatment of individual tax payers – high earners vs low earners
- The moral climate which conceives such schemes as being possibly legal and right
- Such schemes come about from a perceived need to reduce the tax burden as it is seen as onerous. This allows highly-paid advisers to devise ways to avoid tax. Would the position be improved if there was one flat rate of tax on everyone, say 20%?
- In line with this and as a penalty, should anyone be found creating such schemes, they would be VERY heavily fined, equivalent to several years’ earnings, and named and shamed. So the advisers would be visible to the general public also.
Acknowledgements to ICAEW Economia magazine for the reporting on the two cases above:Danny McCance, 6 July re Rangers Football Club, Adam Leyland, 7 July 2017 re Lionel Messi and Dean Williams Accounting and finance Lecturer