Are footballers making use of tax avoidance schemes?

Accountants may remember that the Sunday Times ran an article about Wayne Rooney and other footballers’ practicing tax avoidance earlier this year. Rooney claimed the article was inaccurate but the Press Complaints Commission has now rejected his claim.

In the article, the newspaper said Rooney had saved himself nearly £600,000 over two years by getting loans totalling £1.6 million from Manchester United, rather than receiving the money as taxable income. Rooney said this was both misleading and inaccurate because the loans he received attracted 28% corporation tax and were repaid the following year.

Kinsella Tax Investigations recently published an article explaining that the UK’s current tax legislation entitles footballers to borrow money from their club if it is through a limited company. By doing so, they just need to pay 28% corporation tax instead of income tax at 50%.

When the 50% tax rate was introduced, a number of footballers set up their own limited companies in order to take payments from image rights. Players sign two contracts with their club, one as a player and another for royalties. The royalties from merchandising and images are then paid into the players’ limited company and become liable for corporation tax only.

Players can also get loans from their limited company and pay a mere 2% tax on the value of the loan. The main stipulation is the loan must be repaid no later than nine months after the end of the year in which it was received.

HMRC is aware of this loophole and if it comes across tax avoidance schemes it will work towards closing them down and claiming back any tax it has lost.

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