Matters are a little more complicated for footballers because the remuneration clause will usually include payments for appearances, win bonuses, goals scored or even clean sheets.  They can get even more complicated for foreign players who sometimes want specified sums after deductions to be paid to them (i.e. rather than saying gross salary of £100,000 it might state a net salary of £60,000).  The key point to bear in mind is that the contract creates a contractual obligation and key matters such as remuneration must be agreed between the parties.



With income tax at 40% (50% after 6 April 2010) and employer’s national insurance at 12.8%, it is clear to see that tax is a big expense.  Rather than paying money to the taxman, if you can save tax you can pay your players more and, hopefully, bring better quality players to the club.


So how do you do this?  There are two main ways this has traditionally been done:


  1. Make the payment non-contractual; or
  2. Change the nature of the payment


Non-contractual payments

If I gave you my Celtic shares and said that you had to hold them for them for the benefit of my family, then a trust relationship has been formed.  Your name will appear on the certificate but you can’t do what you want with the shares because I have told you that you must keep them for the benefit of the members of my family.  Likewise, companies can do this by making payment to professional trustee companies telling them to hold the money for the benefit of its employees.  Such trustee companies are usually located offshore for secrecy reasons and to avoid the UK tax net.


Let’s then say that I was a valued key employee of Green Plc who had set up such a trust arrangement by paying £50,000 to the Green remuneration trust.  I could approach my employer and renegotiate my contract to say that I shall be entitled to a reduced salary of £50,000 plus such other sums that might be paid or lent to me by the trust at the trustees’ discretion.  Obviously, this requires a great deal of good faith between me and my employer.  If there is a contractual entitlement or expectation that I would receive specific sums from the trust then the arrangement does not work (tax must be operated).


This is where matters can get tricky.  I might trust my employer but if I have an agent looking after me, why would they want to volunteer a wage cut when they will get a cut of my earnings?  Remember, you can’t have an agreement to make payments (such as a gentleman’s agreement or side letter) because this amounts to an expectation at best or contractual arrangement at worst and makes any payment to the trust taxable.  People wrongly assume that such evidence is inadmissible but if matters go to Court then destroying evidence under your power and possession is a criminal offence.  Also, would you want a football agent in front of a judge testifying on your behalf?


Assuming we have got around the problem above, let’s see where that has got us.  I have received my £50,000 salary and tax and national insurance has been paid in the usual manner.  Quite separately, the trustees of the Green remuneration trust have contacted me and said that they have earmarked £50,000 in their trust for my benefit.  What a lucky coincidence!  I ask the trustees if they would consider lending this money to me on an interest free basis (since it is for my benefit anyway) and they agree.  I am delighted as this will only cost me £800 a year in tax to borrow this (as the benefit is derived from my employment there is an assumed benefit of the amount of the loan £50,000 x 4% (the official interest rate) x 40% (my rate of tax) .  Better still, when I leave Green Plc, there is no tax to pay as I will no longer be an employee.


This is great for me as I have more money in my pocket and great for my employer as they have not had to pay national insurance on my wages.  I have an idea – why don’t I take a further pay cut and hope the trustees might make even more loans to me?  Sadly, the taxman will take a dim view of this.  The amount paid to you must be reasonable in respect of your standing and peer group.  The following information is available from the Rangers accounts but clearly the use of the trust goes back further (amounts £000’s):








Wages and salaries








Contributions to employee trusts









These types of arrangements have been operated by companies for many years.  In 2003, legislation was introduced which stopped companies from getting a tax deduction for payments to trusts until the sum is paid out absolutely to the employee.  As Rangers (and indeed most football clubs) are not making profits) this has little impact on them.



Change the nature of payments

I said earlier that there were two traditional methods to reduce the tax liability.  Let’s now see how you could change the nature of payments.


Amongst my profession, I am a bit of a star.  I am never done signing autographs or stopping to have my photo taken with adoring fans.  It was therefore no surprise that my employer’s contacted me and said they had a proposition for me…


Green Plc has bought a lorry load of cheap nylon ladies pants for £1 each.  They reckon that they could print my photo onto the crotch area of the pants and sell these for £5 each. The best bit is it only costs 50p to print my photo.   I am no fool, that is a profit of £3.50 per pant and I want a slice of it.  I decide to transfer the rights to exploit my image to a company I have formed and in return for placing my image on the pants, Green Plc will pay my company £50,000.


This forms taxable profits in my company but tax is payable at the lower rate of 21% and no national insurance is payable.   Even better if I keep the money in the company, I can retire abroad and pay myself a dividend free of any further taxes.


But word soon gets around and my colleague Lyle Kafferty has approached me saying he wants to cut a similar deal.  Green Plc have bought some elbow guards and they want to stick his picture on them.  Everyone knows that Lyle is not a looker but Green Plc think that they can save some tax and national insurance by paying over the odds for the use of his image and reduce his salary accordingly.  This is where the problems begin and the taxman is now asking Green to justify the payments it has made for the rights to exploit our image.  Whilst I am happy that I have valued my rights properly, this is a scam to change taxable salary into something else.  It would seem that unless you have my looks or Naka’s skill with the dead ball then it might be very difficult to support the valuations used.


So what does this mean for Rangers?

Let me begin by saying that only Rangers, their advisers and the taxman know the extent of the problem.  However, it does not stop us making general observations.


  1. How serious is this?  Ordinarily, going to Court is the least favoured option for all parties.  HMRC have to be pretty sure of their facts before they embark on this route because of the time and costs involved.  Much better to agree a settlement, slap the errant taxpayer on the wrists and move on.  For whatever reason this has not happened.  I presume that is either because Rangers are pretty confident that there is not a case to answer or they simply cannot afford to lose the case.
  2. Who pays?  This depends on the wording of the contracts.  If the players had net contracts (i.e. a specified sum after tax) then the buck stops with Rangers.  If not, it is usual for the trust to operate payroll taxes so will need to claw back any loans or pay the taxes from any residual trust funds.   There is however the issue of interest and penalties.
  3. Timing.  Unfortunately, from 1 April 2010 a new penalty regime was introduced by HMRC which introduced a higher limit of penalties for the most serious offenders.  This could be equal to as much as 100% of the tax at stake.


So in conclusion, this is serious – any case going before the Courts is.  Very few people know the extent of the problem but if I were a Rangers fan (and I thank the Lord I am not), I would not be so happy that this can be glibly dismissed as old news.  The sums involved in penalties alone should HMRC succeed could be enough to trigger a very interesting series of events.