Hearts, HMRC and Kaunas – Have Hearts Been Billed Twice? Guest Post by CDS

Yes, I’m a Hearts fan and something has been gnawing away at me since the HMRC v HMFC tax case.

This is my understanding of the situation.

Kaunas, at the start of Romanov’s reign, loaned players to Hearts. All of these players had played for Kaunas and were registered Kaunas players therefore these players were entitled to be loaned to Hearts under existing football and tax rules (or were they?)

The problem seems to have arisen from the multitude of players who arrived at Hearts having been signed by Kaunas, having never received a wage let alone represent Kaunas on the pitch, and were immediately loaned to Hearts.

Again, it’s my understanding that HMRC deemed these players to be solely Hearts players (quite right too in my opinion. This is no rant at perceived injustices like someone else I might mention…oh ok….our “historical” cousins).

HMRC demanded that Hearts pay the full amount of tax to themselves. Of course Hearts and HMRC have come to an arrangement to pay this back (again, quite right).

Now, for argument’s sake, let’s say the salaries of these players were split 50/50 between the two clubs. Therefore the tax would be split 50/50. (Assuming tax in Lithuania is on a par with the UK)

This throws up a conundrum.

Have Hearts, in effect, paid the tax on the 50% Lithuanian side of things twice? It would seem to me that they have. Firstly, to the Lithuanian tax authorities in run of the mill PAYE (or the Lithuanian equivalent) payments (there has been no intimation anywhere that tax wasn’t paid to the Lithuanian authorities) and secondly, to HMRC via their agreement.

If this is indeed the case what chance Hearts can get this money back from the Lithuanian government. (It’s OK; I think I know the answer)

It does throw up an interesting scenario though.

With the Hearts situation taking second billing to the main event it’s quite hard to get detailed info. The above, as I have said, is only my (and other Hearts fans) understanding of things. We could be (and probably are) wrong. If we are wrong, any info would be great.

Posted by CDS

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68 Comments

Filed under Guest Posts, Hearts, HMRC

68 responses to “Hearts, HMRC and Kaunas – Have Hearts Been Billed Twice? Guest Post by CDS

  1. JimBhoy

    @CDS How can the big assumption of 50/50 split on paying wages be uncovered that’s the key question… Or is there a more complex set up where hearts pay kaunus a general sum per player for the pleasure and then a wage to the player which is subsidised by the Kaunus club in the form of a second wage in Lithuania to the player.. i wonder if that is a legal loophole….

    Another question is did the jambos supply the SFA the full remuneration package detail for the on-loan players, well actually the qn is do they have to show the SFA ONLY what the players’ jambos paypacket was?

    I did not know the Kaunus players in some cases had not even played for that team, it might indicate 2 things, 1, they saw Hearts as a means to giving the players experience before taking them back and punting them OR 2. could it be like described above hearts were made to pay a fee per player, the more players sent from Kaunus (even though never played for them) the more kaunus would receive… I would assume the Hearts accounts could throw more light on some of this…

    Interesting post good to get away from the rangers circus..

    I wonder If Niall would do a similar post of interest on his club… 🙂

    • JimBhoy
      May 14, 2013 at 3:21 pm

      Interesting post good to get away from the rangers circus..

      I wonder If Niall would do a similar post of interest on his club…
      ==============================================

      What’s East Fife got to do with it?…..

  2. Phlimph Doodle

    I would have assumed they were just trying to play a swift one and for the player to not pay any income tax at all, however they obviously then got caught by HMRC and came to an agreement.
    In the UK I believe there is some rule that if you don’t live here for more than 6 months (or some number of days) of the year then you’re not classed as being resident and therefore don’t have to pay any UK income tax. My assumption is that they were trying to do this in reverse. This assumes similar rules apply in Lithuania, but I don’t think this is the case everywhere and US citizens have they have to pay US taxes regardless of where they live and who else they’ve paid income tax too.
    So in my proposed setup Hearts pay Kanus the player wages (hidden as fee for the loan), then Kanus pays the player their actual wages, however the said player doesn’t pay any local Lithuanian tax because they live in Scotland not Lithuania for more than 6 months in the year.
    I guess the idea is that the player is then supposed to get overlooked for tax in the UK because they don’t have any HMRC records. However it all sounds dodgy, and apparently it was because they got caught and HMRC still wanted their cash.
    So in summary they might not have paid any Lithuania tax. Do you know if they did?
    Sorry if I’ve thrown in a big assumption. I know you’re supposed to back everything up with facts and references on this blog, but I was only trying to suggest scenario that someone else could go and check. (I’m supposed to be working)

    • Doc

      This may apply for some of the backroom staff who moved from Kaunas to Hearts but there are different rules for foreign sportsmen/women, just like teachers, students and entertainers. For the players, tax is due to be deducted or accounted for, at the appropriate UK rate, on almost all renumeration received by the player which arises, even indirectly, from their loan spell in the UK.
      Tax would not be due in Lithuania, while the players were in the UK, as the UK has a ‘double taxation’ treaty in place which prevents people being taxed twice on the one income.
      Tax on a loan players income is due to the UK Exchequer and the responsibilty falls on the UK club the player is loaned to.

    • Den

      Phlimph Doodle,

      My guess would be that the arrangements were to avoid tax but not for the players but for Vlad’s business empire.

  3. easyJambo

    CDS – As a result of Hearts big tax case agreement with HMRC, Hearts were deemed liable for £1,190,000 in Tax and NIC, £227,000 in interest and £190,000 in costs.

    There is no indication that Hearts or Kaunas paid any tax to the Lithuanian authorities and if they did, then I’m sure that the final figure due to HMRC would have been reduced accordingly.

    Of more interest in the accounts regarding the relationship with Kaunas is the exceptional item of income where Hearts received £2.9M from FB Kaunas for breach of contracts.

    Note 23 reads:
    “During the year the company invoiced Kauno futbolo ir beisbolo klubas (FBK) for £2.9M in relation to the breach of a contract between the company and FBK for the potential transfer of five of the company’s players to FBK. This was in line with the terms of the contracts originally signed. The company also invoiced FBK £380,000 for the loan of two players from the company to FBK. At 30th June 2012 the company was owed £200,000 by FBK. The company has provided in full against this balance”

    I don’t know the players involved, but given the sums mentioned I can’t see that FBK would ever have the ability to fund transfers of “£2.9M” from Hearts. It looks to me as another example of Vlad shifting money around his companies, but to what effect?

    • Monti

      😀 Maybe Hibs should buy Hearts, knock down tynecastle & build a diet Tesco, Tesco metro. Hearts players would then be Hibs players,Hibs could sell the Hearts players that are now Hibs players,making a tidy profit for Hibs! It get’s my vote,anyway there is only room for one club in the capital,so Hibs over to you….Dance, Dance wherever you maybe, I am lord of the Hearts said he….haha,DIE LIKE THE RANGERS! 😀 HA.

    • Monti

      ALBERT KIDD 1986 😀 HA. JUST SAYING LIKE…….:D

  4. Monti

    Hearts 😀 aaaaahhhhhhhaaaaaaaaa….hhhhhhhhhhhaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa ha.

    • The standard of debate has slipped quite a bit since I last looked in at this site.
      Bye.

      • Monti

        @horse3, I agree 100% Some people are not right in the head 🙂

      • JimBhoy

        neeeeeeiiiiighhhh what do u mean, why have you cloven hoofed it…. There are a few people saying that, now I wonder if we need a troll gate criteria where they seem to be posting for one then leave disgusted, the bears site have the same…

        My message is good riddance enjoy your real site trollBitches, come here is you have questions about the rangers past and present…

  5. Monti

    Craig Whyte & Vladimir Romanov make it on to my good guy list……:), what’s happening to Hearts & has happened to Rangers is Karma, I remember the dark days of Celtic’s troubles during the nineties,and how their supporters glories at Celtic in her darkest hour, I also remember Hearts fans booing the minutes silence for our blessed John Paul II, at Hampden. I hope Hearts get liquidated & soon. 😀 ! WE SHALL REMEMBER……

      • cam

        Its ok old bhoy your sectarian bigotry shall be excused.Guy tries to get away from the pathetic childish debate of trying to decide on a blog site if RFC are really really deid or just resting and in you go and destroy months of “Hun” propaganda in one fell swoop.
        I suggest,honest employment,some library books and contact with other real folk.
        I suppose you could call this your guest post moment,,, 🙂
        If things get on top of you just follow my method of dealing with boring crap that annoys you

        • Cam the Larkhall bam and his library books ey?

          Apparently when Cam and his loyalist mates’ cache of flutes,drums,buckfast bottles and sectarian banners were discovered behind Larkhall Library…..The Grand Master of their ludge expressed his absolute astonishment…….at the existence of a library in Larkhall.

          • david

            Larkhall Library in Muir St has been there since 1921.

            I take it you didnt like it when Paul McStay was captaining Celtic, or his 6 other relatives including one who managed Celtic? Somehow they managed to survive Larkhall as did John Clark, John Steel ( longest servant ) and lots of other Celtic players?

            Stereotypes, eh?

            • listentoyerda

              David! it was Only a wee ” quite a good joke” Larkhaw will Always be, LARKHAW!

            • listentoyerda

              LARKHAW! HAW! HAW!

            • david, a fair comment, however, I posted a reply to you a couple of blogs ago questioning your rapid response to perceived Catholic or Irish distortions of reality , but have yet to see you take issue with some of the misrepresentations of some of our Sevco friends. Simply in the interests of balance, you understand.

        • cam
          May 14, 2013 at 5:39 pm

          Its ok old bhoy your sectarian bigotry shall be excused…
          =========================================

          Yours won’t

    • Monti

      What did i do noo? 🙂

      • david

        MacTomas you didnt see some of my posts then, especially my excoriation of a disgraceful post regarding the disgraceful posting of something along the lines of BJK.

        • Interesting to see the Jambos situation getting an airing. The prognosis does not look great
          . Can’t help wondering though, the Sevco boys’ big noses will be getting all out of joint that they’re not the centre of attention, “but they’re meant to hate us more than Hearts”
          Only one thing worse than being talked about…………

        • david, correct. I did not see that.

          • david

            Stuff the Jambos.
            LONG LIVE THE GLORIOUS HIBEES, 111 YEARS OF HURT COMING TO AN END SOON!!!!!!!!!!!
            GRIFFITHS TO SCORE TWICE PAST STATUESQUE CELTIC KEEPER !!

  6. sorry nae tears 4 the jambos their fans or their club ,stadium , pie salesman,bovril salesman , jist drap dead jambos alang wi dunfermalino,and aw’ the ithers that dinna pye yir taxes, good bye gorgie or wit ever it’s cau’d, better still head rite doon tae the next div and yi’ll still be above yir bun brithers hail hail and god bless wee neilly lennon the ony decent manager in the gemme in shite porridgeland,next tae wee pat fenlon of course cos he still clings tae an ancient creed, cannie w8 for engurland tae well ‘n’ truly skelp the bun haggis bashers(REPS of the S F A) in aug GIRFUY YA, M. H. Bs

  7. jist banter of coorse yi unnerston ken inat

    • JimBhoy

      Aye banter mate makes me feel special to be a Celtic fan, really fukin does….You slate 2 big teams in Scottish history do that some more and who do the Celtic play. We need a clean league system and not an us and them scenario cos we need to play somebody..!!! Just banter like..

  8. cam

    Interesting question CDS are there no Hearty C sites being run in Edinburgh?
    What about blog sites populated by Hibees who spend their life dishing up the dirt on HMFC?
    Is it just a Weegie obsession disorder like salt and sauce?
    Good luck in contacting the Lithuanian Centre 1 and Vlad. who seems to have suffered a stroke of misfortune.

  9. Budweiser

    CDS.
    Wasn’t there something in the news yesterday about a challenge to ukbios administration ?

    • Bud, off topic, re Regan, a sofa & £45K. I defer the glory is yours. I have a dysfunctional I phone which at times barely lets me skim read the posts.
      “An honest mistake” as someone once said 🙂

  10. Den

    CDS

    I don’t think there is any overpayment.

    HMRC will try to tax the player on his earnings from employment in the UK and will have seen this trick often enough to see through it. Many overseas nationals want a part of their salary in their home currency.

    If there was a 50:50 sharing of the costs and Hearts only paid their 50% then they would perhaps have a case. Most likely Hearts reimbursed Kaunas for the balance of the salary through another route, possibly Intra Company billings. In effect they paid the full salary and should have accounted for income tax on the lot.

    If my assumption about the reimbursement of FBK is correct, it was fair that Hearts paid the full amount.

    It may be that the players could claim double tax relief if income tax was deducted on what (if anything) Kaunas paid out to them in country, but that won’t help Hearts.

    • Den

      First glance suggests that they have lower tax rates than the UK.

      If you are going to make a profit you want it in a lower tax regime. You achieve that by moving revenues to the lower tax regime or costs to the higher tax regime.

      It is hard to shift Football club revenues out of country so the other option is to move costs. If you were to pay a player £30k in Lithuania but charge him to Scotland at £60k you would gain by the difference in tax rates.

      It is obviously more complex than that as tax authorities are quite well aware of the use of transfer pricing to shift profits around and have rules and regulations to deal with it.

  11. ecojon

    @CDS

    I would say this is a difficult one to crack because even if figures are obtainable will they be reliable or accessible especially with regard to the Lithuanian end.

    Is there any way of determining what the total wages were of the players brought over which would allow an approximation of the tax and NI payable to HMRC. It might be accurate enough to show-up whether 50% or 100% of their wages were paid by Hearts. But that would depend what records were publicly available. But then perhaps easyJambo deals with that issue.

    But I’m not as sure as easyJambo that if Kaunus or Hearts had paid any tax to the Lithuanian authorities that HMRC would have reduced their bill here. I think HMRC might have taken the stance that any such agreement was an inter-company matter and that tax and NI raised from wages paid in Scotland were payable to HMRC and anything paid to Lithuanian tax authorities by Hearts or Kaunas didn’t affect the Scottish liability.

    I wondered why you think that Hearts only paid 50% of the wages when you say that these players were rightly regarded as Hearts players. If they really were would Hearts not be responsible for 100% of their wages? But if they were Hearts players did the club get any proceeds from subsequent sales or transfers to Kaunus and again easyJambo touches on that.

    But was it ‘real’ money that was being moved or could there be counter balances or transfers also taking place. This is always the problem when various companies are involved and there is an intent to move money about in a way that can be baffling althout not necessarily illegal.

  12. cam

    It’s like a bus run on a McGills coach in here.
    Paul keeps driving on the left hand side,taking us to preferred destinations.mick and monti are throwing sweetie wrappers,carl,duplesis, and michael are trying to read a broadsheet on a bus load of weans,i’m trying to divert the bus to Larkhall Gala Day and getting the other passengers to play spot the orange sheep,carson is putting a tottie up the exhaust,Eco is pointing out interesting bollards and giving us the history of lay-bys,Adam is arguing if the coach is licensed properly,MOT says the buses in Leeds are far superior,Maggie would like to punch my ticket,Jimbhoy has smuggled a carry oot onboard and is trying to organise a sing a long.
    The LNS cathedral tour was a big let down although i loved it and the statue of Billy Nimmo was beautiful.The FTTT excursion ended in tears as everybody said the guidebook promised a great day out,but we’re getting dragged back another day,,,boring!
    Paul keeps mentioning this great cafe called BDO,where tasty snacks are being prepared but i think he’s at the madam.
    Right hang on i’ve gotta get out here and use the toilet,,,i’ll be back don’t go without me!

  13. Adam

    Off topic, but good luck to Maloney, McCarthy, McCarthur and Caldwell tonight. Would love to see Wigan taking it to the last day and the “Scottish” connections staying up.

  14. Ian

    I’m sure I read somewhere that Hearts did not actually pay any wages here but sent the money to Lithuania as some form of rental agreement on the players and that Kaunas were actually paying the wages.
    If thats the case would Hearts be liable for any form of taxation here ?

    • Den

      Ian,

      Strictly speaking Hearts were not being taxed, the tax was on the players earnings from playing Football with Hearts. Hearts were responsible for making the deductions and paying them to HMRC.

      The players were earning in the UK and tax was due on this.

      In the absence of evidence on what the players were actually earning HMRC would have defaulted to the Rental agreement being their earnings.

      I have my doubts whether the players would have received all of the value of the rental payments but it would be up to Hearts to convice HMRC of that.

  15. Ian

    thanks den
    Get the bit about tax on earnings here but if no wages were being paid here what kind of tax would they have been liable for on a rental agreement ?
    Possibly VAT at a far lower rate than income tax ?

    • Den

      I’m surmising here.

      The guys are football players in Scotland, it would be expected that they will receive payment for it. Their employer is responsible for deducting tax and NI at source.

      If the players wages are actually paid into their accounts from a company in Lithuania but Hearts pay them indirectly it is still taxable in the UK as income.

      If the employer simply classifies the payment as other than wages HMRC will not accept it at face value and will assess it as wages and compute the deductions they didn’t receive. In this case the rental payment or whatever it was called would be taken as a disguised wage payment.

      Of course there would probably have been a lot of arguing and negotiations but I think that would roughly have been the thought processes.

  16. jimmy white

    what name will be inscribed on this seasons division 3 champions trophy?

    if it’s not THE rangers as opposed to rangers or glasgow rangers then surely this should be contested, I for one would contest this and no threats would stop me! Right, where will i start, if so, I might need a wee bit of advice on the how’s about’s and aw that. cannae hev trophies wi non existences on them! can we?

  17. Ed Paisley

    I’ve had great affection for Hearts since the 70s when that great maroon stalwart Donald Ford strutted his stuff.
    Liquidation for this great club would be a calamity for their supporters, because, being intelligent people, they fully understand the implications of such an event. Remember that Hearts has an untainted and glorious history that is truly worthy of preservation.
    So I sincerely hope the supporters can reach some kind of deal with the Lithuanian creditors to take over the club and protect its history – the alternative is the ignominy of liquidation and extinction.
    Good luck Jambos.

    • Fraser

      I’ve had a moderate loathing of Hearts since about 1970 when I started supporting Hibs. I would agree however that liquidation would be a calamity for the club and its supporters, same as it would be for Cowdenbeath or Montrose or any other club, just for a few more people. And just like Rangers, however much some protest otherwise, their history won’t go away if they are liquidated; it will simply be transferred to whatever phoenix club emerges from the wreckage.

      Hearts supporters are intelligent and retarded in the same proportions as all other bodies of football supporters, and I certainly don’t exclude Hibs from that. Although it might be argued that Hearts fans have exhibited above average stupidity in allowing their club to be appropriated by Romanov, a man who spoke no English but only Bullshit, I think that is unfair. What choice did they have? Had they refused to support the club once he was in control its fate would have been identical to that from which he saved it. Flats, flats, glorious flats. And it’s down at Murrayfield we bide, etc.

      The burning question for Hearts supporters is just how much of 24m debt will they need to pay off in order to satisfy the Lithuanian creditors. Before the collapse of Ukio and Romanov’s resignation from the UBIG board the question was directed at Romanov – how much more was he willing to write off? But now it’s out of his hands and into those of faceless administrators who have even less care for a Scottish football club than its owner had. HMRC didn’t have much care for Rangers and knocked back 8m of a potential 50m or so. I have my doubts that the Lithuanians would accept much less than the book value of Hearts’ total assets, including Tynecastle which they effectively hold already.

      Best case scenario I can foresee for Hearts is to be lodgers at Tynecastle while trying to keep up with the payments on a large debt for many years to come. That seems to me to be what would deliver best value to the creditors unless they want cold hard cash as soon as possible. Driving Hearts into liquidation would only realise the book value of a big pink bus shelter in a depressed market. The 20m that the Pieman struck a deal for seems like a dream now.

      Any intelligent Hearts fans looking across the country at recent events in Govan and concluding that liquidation might not be such a disaster should be wary. Although the SFA and the shiny new SPFL would undoubtedly bend or reshape whatever rules they might have to accommodate Phoenix Hearts in their new league, same as Rangers were, Hearts clearly don’t have the income raising potential that Rangers had. They’ve done the share issue and raised 1m and it’s clear there are no Hearts fans with wealth off the radar ready to step in. The earning potential of Hearts is insufficient to attract the city investors that were eating out of Charlie Green’s hand, so there is no chance of Hearts being able to sustain the kind of squad that would guarantee swift promotion back to the top table, and that could be disastrous for them. The supporters would simply not turn up in similar droves to those seen at Ibrox. Oblivion might ensue.

  18. Ed Paisley

    Jeez that Santi Cazorla looks like a young Bernie Winters!

  19. Monti

    Should the SFA & SPL not be demanding straight answers from Hearts, if they go into administration or liquidation this season, this will affect other clubs plans for next season?

  20. Fra

    Mad Vlad could’ve got a job on the toxic clubs board. One more shyster wouldn’t have been noticed.

  21. Mr.Green

    It’s money laundering by Romanov, isn’t it ? He’s used Hearts and kaunas for this purpose.

  22. Den

    Mr Green,

    It could be, but there may be other explanations

    What is not in doubt is that another football club has suffered from being a pawn in the game of a purported saviour.

    I am not up to speed on the games that these people play, many of them legal. I do know that a mystery individual arriving with a complex array of companies to take over an ailing company mostly ends badly. There are exceptions of course.

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