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.

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The National Audit Office Criticises HMRC for Handling of Alleged Tax Avoidance Cases – And Says It Needs to Do More!

The National Audit Office (NAO) scrutinises public spending on behalf of Parliament.

Its audit of central government has two main aims.

According to the NAO website:-

“By reporting the results of our audits to Parliament, we hold government departments and bodies to account for the way they use public money, thereby safeguarding the interests of taxpayers. In addition, our work aims to help public service managers improve performance and service delivery.”

The NAO itself was one of the Thatcher Government’s creations in 1983, as part of her “war” with the Civil Service. Whilst the National Audit Act started as a Private Member’s Bill, it was seen as being a device by Mrs Thatcher to try to wrest some control of Government Departments back into the hands of politicians, rather than having the reins held by the real-life Sir Humphrey Applebys who manned (and it usually was “manned”) the Civil Service.

The Act also created the Public Accounts Commission, to oversee the NAO, perhaps to ensure that the undoubted independence of the NAO was not taken too far.

Yesterday the NAO released a new report which can be found here.

The Comptroller and Auditor-General, Amyas Morse, was quoted saying:-

Mr Amyas Morse, Edinburgh-born Comptroller and Auditor-General

“HMRC must push harder to find an effective way to tackle the promoters and users of the most aggressive tax avoidance schemes. Though its disclosure regime has helped to change the market, it has had little impact on the persistent use of highly contrived schemes which deprives the public purse of billions of pounds.

“It is inherently difficult to stop tax avoidance as it is not illegal. But HMRC needs to demonstrate how it is going to reduce the 41,000 avoidance cases it currently has open.”

The report summary goes on to say:-

The tax avoidance disclosure regime introduced in 2004 by HMRC has helped the department make some important headway in reducing the opportunities for avoidance. However, there is little evidence that HMRC is making progress in preventing the sale of highly contrived tax avoidance schemes to a large number of taxpayers.

In each of the last four years, over 100 new avoidance schemes have been disclosed. While HMRC believes most of these would be defeated if tested in the courts, there is no evidence that their usage is reducing.

Today’s National Audit Office report recognizes, however, that DOTAS has helped HMRC to change tax law and prevent some types of avoidance activity. Since the introduction of the regime, HMRC has initiated 93 changes to tax law designed to reduce avoidance. DOTAS has also helped to change the market of tax avoidance schemes, and the larger accountancy firms are now less active in this area.

Tax avoidance is not illegal and is therefore inherently difficult to stop. A potential avoider can use a scheme to gain a tax advantage until HMRC can prove that the arrangement is not consistent with tax law. This is a resource-intensive process which can take many years and often requires litigation.

HMRC has increased its focus on the tax affairs of high net worth and affluent individuals. While its high net worth unit set up in 2009 brought in £200 million of revenue that would otherwise have been lost in 2011-12, there are still 41,000 open avoidance cases relating to marketed schemes used by individuals and small businesses, and HMRC has yet to demonstrate how this number will be reduced.

The large number of users of mass-marketed schemes presents a challenge to HMRC. It has identified around 30,000 users of ‘partnership loss’ schemes and disguised remuneration schemes. It has sought to tackle such schemes by litigating a few ‘lead cases’ to demonstrate to other users that the scheme will not succeed in the courts. While HMRC has a good success rate when it litigates, its investigations can take many years to resolve and it cannot always successfully apply the rulings in lead cases to other cases.

HMRC has an anti-avoidance strategy, but does not monitor its costs and has not yet identified how it will evaluate its effectiveness. This limits its ability to make informed decisions about where to direct its avoidance activity.

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Let’s make a quick checklist of the main points, shall we?

• HMRC must push harder to find an effective way to tackle the promoters and users of the most aggressive tax avoidance schemes.
• Highly contrived schemes which deprive the public purse of billions of pounds.
• Little evidence that HMRC is making progress in preventing the sale of highly contrived tax avoidance schemes.
• A potential avoider can use a scheme to gain a tax advantage until HMRC can prove that the arrangement is not consistent with tax law.
• This process can take many years.
• It often requires litigation.
• There are still 41,000 open avoidance cases relating to marketed schemes used by individuals and small businesses.
• HMRC has identified around 30,000 users of ‘partnership loss’ schemes and disguised remuneration schemes.
• It has sought to tackle such schemes by litigating a few ‘lead cases’ to demonstrate to other users that the scheme will not succeed in the courts.
• HMRC has a good success rate when it litigates.
• But its investigations can take many years to resolve.
• HMRC cannot always successfully apply the rulings in lead cases to other cases.

That report and the undoubted criticism that HMRC will get for not doing enough to bring in the billions of pounds of tax income to which this report relates are likely to have an effect on how the tax recovery strategies framed by the taxman are revised.

I suspect that this is probably the worst time for a high-profile and high-value case relating to allegedly artificially constructed disguised remuneration schemes to have been decided against HMRC by a split First Tier Tribunal, especially where there are reputed to be many thousands of those cases still open, with billions of pounds at stake.

It would seem to place a great deal of pressure on HMRC to take such a case, should there be one, to appeal, even if only “pour encourager les autres”.

However, I can’t immediately think of such a case off the top of my head.

If there was, then the allegedly delinquent taxpayer might have to put his celebratory champagne back on ice for a few weeks until time for appeal has come and gone.

But we don’t know of anyone in that position, do we…

Posted by Paul McConville

Hearts – “A Call To Arms” – Pay Up or the Club Dies!

Yesterday I wrote about the new HMRC petition to wind up Hearts over a tax debt in excess of £400,000.

The announcement of this, which the Hearts Board had to do if they wish to proceed with their share issue, was followed by an apocalyptically titled letter to the fans – The future of Heart of Midlothian.

It reads as follows, with my comments in bold:-

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Today the Board of Heart of Midlothian plc is writing to you with the express wish that every supporter provides emergency backing for the club.

This is not so much a request as a necessity.

To use the words yesterday of John Robertson, one of the greatest players in this club’s history, this is a “Call to Arms”.

There is no greater need than now for supporters to invest in the club in whichever way you can, without delay. How can you do this?

HMRC v Hearts – A New Winding Up Petition – Might Sink Share Issue…and the Club

Recently I wrote about the Hearts share issue, the fact that the support seemed to be fully behind the efforts to raise funds to keep the club going to the end of the season, and the numerous risk warnings which basically amounted to the Hearts Board saying that there was literally no chance at all of any return whatever in return for buying the shares.

The share issue was a cri de couer by the Board. Having pointed out that the business was effectively insolvent, the Board said that is the share issue failed, then they would have to source the money from elsewhere. Who would lend to an admittedly insolvent business?

Today saw two announcements from Hearts, both of which emphasise the parlous position the club finds itself in. I will deal with the second in a later post.

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The Board Statement – Winding Up Petition

Heart of Midlothian plc (the “Club”) today wishes to make supporters and potential share offer investors aware of this most recent financial matter for their consideration in conjunction with the Share Offer 2012 brochure.

The Club has been served with an Order to wind up Heart of Midlothian plc by the Court of Session on behalf of the Commissioners for Her Majesty’s Revenue and Customs (the “Petition”).

The #Rangers Response to The Times on Tax Investigations, Richard Hughes and Zeus Partners

After last night’s piece in The Times suggesting that Zeus Partners, a business run by Richard Hughes of Zeus Capital, was under investigation with a view to possible prosecution of unnamed parties, there has been extensive debate, not least here on this blog, about what, if anything, this means for Rangers.

The sub-editor who prepared the headline to the article may have over-egged the pudding slightly. To be fair, the article did not suggest any wrong-doing on the part of Rangers but, with a share issue on the way, and with the highly publicised troubles the previous company had with tax issues, it was undoubtedly an embarrassment which Mr Green and his cohorts would rather have done without.

As one would expect, there was a response from within Ibrox. It is only fair to re-produce it here. My comments are in bold.

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The Board of The Rangers Football Club has issued the following statement today:

It reads: “The Board wishes to express its dismay over articles in The Times newspaper today which implies the Club is “in fresh trouble” with HM Revenue and Customs in relation to an investor in the Club. This is categorically not the case and the Chairman of the Club has written to The Times on this matter.

“The Rangers Football Club has no outstanding issues with HMRC and indeed the current management have an open and transparent dialogue with HMRC and, in particular, through our auditors and reporting accountants, Deloitte.

One would hope that, as a brand new company with less than six months’ existence, it would not have had time to run into difficulties with the tax man yet (or indeed at all)! Open and transparent dialogue with HMRC is a good thing. Long may that continue.

 

“The historic tax issues affecting Rangers (RFC 2012 Ltd which is now in liquidation) are well documented.

Well documented, although one will not find too much about them on the archive pages of the Rangers website!

Maybe, once the FTT reports, I can frame a book round it, thus documenting the Rangers EBT issue in no more than 2,000 pages. 🙂

 

“These issues, notably surrounding the EBT scheme, will continue to receive much media coverage, but have no bearing upon the ongoing operation of the football club and its intention to list as a public company.

The tax issues will have no direct bearing on the football club and the intention of floating. However, indirectly, they will, on the basis that they form part of the debt being pursued by the liquidators, BDO. Their inquiries, investigations, and right to challenge any alleged gratuitous alienation, could impact on the newco. It might not affect the fans who buy shares, but could discourage institutional investors.

However, as Mr Green has predicted a 400% profit for investors at this stage, I am sure such concerns would be dismissed by the money managers with millions at their control. After all, a little embarrassment is worthwhile if it can be traded for a four-fold profit!

 

“We wish to reiterate that Mr Richard Hughes has no involvement in the management of the club, nor is he a director.

The Times did not suggest he had such a role. Instead, he was described as an important shareholder.

And although he may have no role in the management of the company, two of his colleagues, or former colleagues, Imran Ahmad and Brian Stockbridge, are directors of Rangers. They remain listed on the Zeus Capital website as of today.

 

“Richard Hughes or his company Zeus Capital, both FSA regulated, are a minority investor.

One would have thought that Rangers would know who the shareholder was – after all, the shares cannot be transferred in a private limited company without the Board’s agreement.

It is true to say that Mr Hughes/Zeus is a minority shareholder. However that is in the sense of not being the majority owner, rather than someone with a handful of shares for sentimental reasons.

 

“The Club does not have an existing relationship with Zeus Partners, which is also named in The Times as being part of an HMRC inquiry.

No one, including The Times, suggested that there was a current relationship with Zeus Partners. The specifics of the response lead to a simple question. If no existing relationship with Zeus Partners, has there been one which ios now concluded?

 

“It would be inappropriate for The Rangers Football Club to comment further on either the private and professional affairs of Mr Hughes, or the commercial activities of Zeus Partners or Zeus Capital.”

So the statement does not deny, as would have been very difficult, that there are dealings with Zeus Capital.

One must admire the speed of the Board’s rebuttal, not letting the grass grow on the story. However, the issues with Rangers over recent years, and the proximity of a share issue not unreasonably raise concerns when allegations are made, however tenuous, of financial “chicanery”.

There was no comment in the statement on the allegation in the Times piece that Mr Hughes stood to make millions from the floatation. Perhaps that was because that would be seen as the private or professional affairs of Mr Hughes!

I wonder how pleasant the next partners’ meeting of Zeus Capital will be, if Mr Ahmad and Mr Stockbridge have to raise with the boss of Zeus the effect, if any, this news might have on the share flotation.

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And talking of tenuous connections, and indeed one which is undoubtedly a coincidence, as well as this Richard Hughes, there are a number of others of that name listed on the FSA Register. One of Mr Hughes’ namesakes is a financial adviser with Merchant House Financial Services – Merchant House being closely connected with the erstwhile owner, Mr Whyte!

 

Posted by Paul McConville