Tax fraud in football: examining the Newcastle and West Ham dawn raids

The sight of tax officers descending on Newcastle United and West Ham United to search premises and seize documents, computers and mobile phones as part of an investigation into alleged tax fraud garnered substantial media headlines. “Several” people were arrested, including Newcastle’s managing director, Lee Charnley, who was later released without charge.

tax fraud

Tax fraud in football

The scale of the activity is no real surprise. HMRC is chasing tax evasion down across all sectors not just within football or sport generally. It does, however, come off the back of government announcing that over the next three years their dedicated football compliance team will be visiting every single professional club within the main English and Scottish leagues.

Aside from the considerable interest generally in sport, football itself has a huge amount of money associated with it, particularly given the significant value of media rights associated with the sport. Much of the money paid for rights finds its way to players, agents and also to fuel transfers between clubs. The Revenue has long been concerned about the tax treatment of certain payments.

The very public dawn raids on the clubs involved 180 tax officers across both the UK and France, and HMRC said French authorities assisting it had “made arrests” and searched “several locations” in the country. HMRC said the arrests concern “a suspected £5m income tax and National Insurance fraud”. The implication is of a failure to properly declare who was paid what directly or indirectly on a transfer where declarations made fail to match the actual situation.

Fighting the problem

The steps taken are well within the legal powers available to HMRC. It gains an additional powerful tool this year – the new offence for the failure to prevent the facilitation of tax evasion – and it is already stepping up activity in preparation. Activity will be ramped up even further once it is actually operational. It is becoming increasingly clear that no sector or industry will escape scrutiny.

The Criminal Finances Act 2017, passed the day after the football industry raids, creates two new offences which will effectively make a business vicariously liable for the criminal acts of its employees and other persons ‘associated’ with it leading to the facilitation of tax evasion, even if the senior management of the business was not involved or aware of what was going on. The first offence will apply to all businesses, wherever located, in respect of the facilitation of UK tax evasion. The second offence will apply to businesses with a UK connection in respect of the facilitation of non-UK tax evasion.

The scale of these raids is dramatic, even for HMRC. Dawn raids are partly undertaken to send a clear message of deterrence. HMRC wants tax evaders and facilitators to be scared. Recent investigations also quite clearly demonstrate that international cooperation and coordination is improving all the time.

What next?

Corporates need to be aware of the new powers HMRC will have at its disposal this year, and take steps to ensure their affairs are in order, yet a YouGov poll we commissioned also revealed that two-thirds of the senior decision-makers at the UK’s largest businesses were unaware of the new criminal offences.

Data provided to us by HMRC also reveals that it carried out 28 per cent more raids in 2015/16 than it did the previous year. In 2015/16 it carried out 761 raids compared to 593 in 2014/15.

From a footballing perspective, the governing bodies will be equally concerned that these allegations, if proven, will go to the heart of the business of football and the way in which it operates with potential ramifications for any participant found to have brought the game into disrepute.

Irrespective of outcome, the dawn raids have cast a shadow at the end of a season that may well reach out long into the summer and beyond as the enquiry gains momentum.

Trevor Watkins is global head of sport and Jason Collins is head of litigation, regulatory and tax at Pinsent Masons

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