The Tax Man cometh…

There can be no doubt that the abbreviation HMRC is one which has hit pretty well every football fan’s radar screen recently.  There have been the two big Administrations at Portsmouth and Rangers.  Bubbling away in the background is not only the issue of whether clubs’ use of Employment Benefit Trusts constitutes tax evasion (and is hence illegal) or merely tax avoidance (perfectly legal), but also HMRC’s challenge to the legality of the Football Creditors Rule, which has seen it take substantial hits in its revenues since the Crown lost its ‘preferential creditor’ status in 2003, which resulted in ‘football creditors’ coming higher in the ‘pecking order’ when things went pear-shaped.  At present clubs in Administration face an obstructive HMRC when seeking to enter a CVA which would see HMRC being paid anything less than 100p in the pound.

Has the general approach of HMRC to football clubs changed over time?  It states its position pretty consistently, as it did thus with respect to Rangers: “We can’t discuss specific cases for legal reasons, but tax that has been deducted at source from the wages of players and support staff, such as ground keepers and physios, must be paid over to HMRC.  Any business that fails to meet that basic legal requirement puts the survival of the business at risk.“

So, just what is HMRC’s track record over time in pursuing football clubs?  I’ve been researching its propensity to ‘present a winding-up petition’ against a football club, and how it’s changed in terms of frequency over the period since 1960.  Some of the outcomes are unsurprising, but others may be a little surprising.

The full data set is available here, and I will endeavour to keep this list up-to-date.  It covers all English and Welsh clubs, but not Scottish clubs, and has been developed by searching the London Gazette database.

Here are some thoughts on what I found:

• HMRC and its predecessors (the Inland Revenue, who were responsible for collecting direct taxes such as income tax [including PAYE] and National Insurance contributions, and HM Customs & Excise, who were responsible for collecting indirect taxes, notably VAT, merged to form HMRC in April 2005) seem to have shown little favour towards League clubs, and even less to non-league clubs.
  In total since 1960, they have presented a total of 181 winding-up petitions, against League clubs on 58 occasions, and against non-league clubs on 123 occasions.

• The frequency has varied considerably.  There were only two petitions presented in the 1960s, whereas in the peak decade to date, the 1990s, 62 were presented.
  (Images can be enlarged by clicking on them)

• A year-by-year plot of petitions since 1990 reveal a more nuanced pattern.  After a burst of activity in 2002, HMRC seem to have eased off presenting petitions until taking up the challenge again seriously in 2009, with a greater proportion of League clubs being the object of HMRC’s interest.
• My impression from the list of clubs involved is that there is something of a North/South divide, with a disproportionate number of Southern clubs in the list

• HMRC has complained of ‘serial offenders’ and there is some evidence of this.  Bournemouth were on the receiving end of 5 petitions between 1995 and 1997; Chester City received 6 between 1986 and 2009; Crawley Town received 6 between 1973 and 2010; Doncaster Rovers received 4 between 1988 and 1994; Hartlepool United received 7 between 1982 and 1993; Hull City received 6 between 1992 and 2000; Margate received 4 between 2001 and 2010; Northwich Victoria received 4 between 1983 and 2008; Southend United received 4 between 2000 and 2011; and Stockport County received 4 between 1975 and 1999.

Looking at just the list of Winding-Up petitions of course tells only part of the story.  The size of the debt to the Tax Man has grown astronomically.  When Accrington Stanley withdrew from the Football League in 1962, the club owed the Tax Man roughly £4,500; Portsmouth owed HMRC approximately £11 million when they sought the protection of Administration in 2010.  The interesting question is why did HMRC hold back in the period up to 2009 and allow such large debts to grow.  It’s not as if they have a track record in the longer term of being tolerant with football clubs.

One petition in the list intrigues me, and I would appreciate any input from readers who know of the circumstances: in 1993 Customs & Excise presented a petition against Gorton and District Sunday League Football Club, and the club was indeed wound up as a result.

That feeling of déjà vu at Pompey, all over again

Portsmouth’s return to Administration today (1) for the second time in a smidgen under two years speaks volumes, especially coming in the week that Rangers, a rather more iconic club, suffered the ignominy of Administration too (2).  High profile those these events are, the phenomenon of financial problems is not confined to te top clubs.  This season so far we have also seen Darlington go into Administration, as have Rothwell Town way down the pyramid.  Prescot Cables have returned to amateur status mid-season, and poor Croydon Athletic have disappeared, at least for the moment.  (A full listing of English football clubs’ insolvency events in the modern era is available here; a warning, it does not make pleasant reading)

It would be easy to dismiss the case of Portsmouth as a special case (especially bad, that is).  The ‘club as company‘ has a long and shameful tradition.  It was formed in 1898 to replace the previous club, Royal Artillery, who were disbanded because of that delightful euphemism ‘financial irregularities’ – payments to players which were blatantly undermining their supposed amateur status.  Funny how history can return to haunt you.

By 1912 the owners were already in deep financial trouble, and the company was voluntarily wound up and promptly reformed, thus wiping out its debts (3), a procedure which is no longer legal, but was far from rare in those days.  The mind boggles at how football clubs today would behave if it were still a legal option like this open to them.  To use a ‘Partridgeism’, the club ‘bounced back’, entering the Football League in 1920, winning the FA Cup in 1939, and the old First Division title in 1949 and 1950.

The road was only downhill after that, obviously excepting the recent relatively spell in the Premier League and FA Cup win.  Sporting decline was followed by financial decline.  A series of owner/benefactors who failed in various degrees is a familiar mantra to Pompey fans – since 1973 the list reads John Deacon, Jim Gregory, Terry Venables, Martin Gregory, Milan Mandric, Sacha Gaydamak, Sulaiman Al Fahim, Ali Al Faraj, Balram Chainrai, and Vladimir Antonov.  Whatever criticisms can be made about them individually, the lack of any continuity has hardly been good for the club.  And there will doubtless be further criticism to come as the unravelling enquiries of both this period of Administration, and the previous one, tease more and more uncomfortable detail out of the wood work.

Of the 200+ files I have on English football clubs, Portsmouth’s is the biggest.  It would be convenient to say that this is because I am Pompey fan.  That would not  though be honest.  It’s because they have a spectacularly aberrant history of ownership and mismanagement.  ‘Spectacularly aberrant’ from normal business, that is.  Merely ‘worse than most’ with respect to other football clubs.

The themes which have dogged Portsmouth occur throughout my files, and all over this blog:

• Owners who did not have deep enough pockets, and yet push clubs further into unsustainable financial positions

• Owners unlikely to win ‘Ethical Businessman of the Year’ competitions

• Owners who have clearly not read the dictum of Mr Micawber in David Copperfield (Charles Dickens was born in Portsmouth, so the reference is particularly appropriate)

• Repeated failure to pay HMRC on time

Portsmouth’s latest ‘misadventure’ should provide a wake-up call.  But then so so should their one two years ago.  Will the governing bodies just hit ‘snooze’ again?  I like to think not, but, would you believe it, I’m not optimistic.

I can’t argue that the imposition of the Financial Fair Play protocol, or effective club licensing ,or an effective Fit and Proper Person Test would necessarily have avoided Pompey’s current discomfort.  Without them though, another round of insolvency events is inevitable.  It doesn’t have to be that way and nor should it be.

Surely the football world must finally wake up to sorting out, as its highest priority, its financial messes, by attacking the causes rather than the symptoms  rather than stressing over the number of English clubs left in European competition or who the next England manager should be.

That elusive number of insolvent football clubs

Today’s breaking news makes for grim reading.

First there are the reports that Portsmouth is to go into Administration again (1).  With the club’s bank account now frozen, players and other staff unpaid, and an early parachute payment in the offing, this comes as no great surprise.

Meanwhile, North of the Border, it is reported that Rangers are declaring their intention of going into Administration (2).  In theory at least, Administration might yet be avoided – they might manage to negotiate a deal with their creditors, but this seems unlikely as it involves HMRC and a sum of £49m , or they might find a new owner in the meantime (which seems almost as unlikely).  The process of ‘declaring intent ‘ provides a company with temporary protection from creditors.  Two precedents from English football spring to mind: Plymouth Argyle (who did subsequently go into Administration) and Coventry City in 2007 (who found a buyer in the nick of time, thus avoiding Administration).

Those interested in the complexities of what has been going on at Rangers should follow the excellent Rangerstaxcase blog.

It was the case of Coventry City that prompted me back then to find what proved to be an elusive number – the number of top flight clubs that had gone into Administration.  So elusive did it prove to be that I started compiling relevant data in an attempt to produce it myself.  The results of this research I have now added to the blog on a new page No. of Clubs, accessible by clicking on the link or from the top menu.  Please read the bumf at the top of that page before diving in!