Insolvency in sport is not a new phenomenon. In football in the last 10 years, the well publicised cases of Leeds United, Portsmouth and Coventry City have made us all more aware that sports clubs are not immune from the financial challenges often faced by other businesses.
Sportsmen are often portrayed in the media as having glitzy and glamorous lifestyles. However, the bankruptcy of household names such as Colin Hendry, Lee Hendry, Keith Gillespie and former England goalkeeper, David James, has highlighted some of the troubles sports people can encounter, particularly after retirement.
Problems, including excessive spending, gambling and a failure to plan for the future from what is a very short career, are common. According to Xpro, a charity set up for the welfare of ex-professional footballers, 33 per cent of players get divorced within a year of retiring, 40 per cent are declared bankrupt within five years of playing their last game and many struggle with injury and a failure to readjust their spending and lifestyles when their earnings fall. However, what is becoming just as common is investments going wrong.
The combination of youth and wealth means footballers have money to invest but can often result in poor advice and guidance. Investments which promised to reduce tax bills were entered into by footballers, many of whom did so because many other footballers were doing so, without considering or having fully explained to them the implications should tax avoidance schemes go wrong.
The impact of APNs_
Accelerated Payment Notices (APNs) were one of the new powers introduced within the Finance Act 2014. An APN is designed to remove the cash advantage of sitting and waiting during a tax avoidance dispute – a pay now argue later principle, with payment usually required within 90 days of receiving the APN. If the taxpayer ultimately succeeds in showing that the disputed tax was not payable, the sum paid to HMRC will be returned (with interest). If HMRC is successful it will retain the sum paid, with a balancing payment due if the amount of tax due is different from the sum paid on account.
An APN requires tax payer’s using avoidance schemes to pay the disputed tax upfront where the tax payer is using certain arrangements that have been disclosed under the disclosure of tax avoidance scheme (DOTAS) rules. The legislation applies to arrangements entered into in the past, not just new arrangements entered into after enactment of the legislation.
Responding to APNs_
The biggest problem for anyone receiving an APN, and its not just sports people, is likely to be cash flow, particularly with payment due within 90 days. Some current and former sports people have sought help from the Professional Footballers Association and from Xpro. When taxpayers receive an APN they need to decide if they are going to pay or if they are going to challenge the legislation. However, the options and representations which can be made are often limited and at best likely to lead only to a delay in payment. In many instances the only long term legal remedy may be judicial review but this can be expensive and the chances of a successful outcome should be considered carefully. The time limits are strict, with 90 days to file for a claim for judicial review after grounds to make the claim first arose. In order to avoid bankruptcy if they do not have the cash to make the payment within 90 days, taxpayers may seek to enter into a time to pay arrangement or propose an individual voluntary arrangement (IVA) to their creditors including HMRC.
The legal challenge_
The first legal challenge to APNs is underway as investors in the Ingenious Media film partnerships have been given permission to bring a judicial review. Ingenious Media has previously denied HMRC’s allegations that it is involved in schemes which were not legitimate businesses but a means of avoiding tax. Several well known sports people are reported to have invested in such schemes and have subsequently received APNs. The investors are understood to be arguing a number of points, mainly on Human Rights grounds including a breach of their rights to a fair trial, a breach of their rights to property and various common law allegations. The taxpayers allege the APNs are unlawful because those issued with one have no right of appeal and because they are retrospective because they apply to schemes which were entered into before the APN rules came into force. The matter will be heard by the High Court and sports people, and other taxpayers alike, will be awaiting the outcome with bated breath.
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