Arsenal in a tax scheme prob

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The Premier League club faces an unexpected tax bill of almost GBP 12m after an investigation into a tax scheme it had employed to reward its players. The club signed its top players over two contracts, while the first one deals with an annual basic wage mostly taxed at the higher rate of 40% plus National Insurance, the secondary contract deals with performance-related bonuses, which for top teams like Arsenal can account for up to half the total income package received by players. These bonuses however are paid via an offshore front company that enables foreign players to avoid almost all tax.

According to a report in The Times, the scheme has helped to avoid paying tens of thousands of pounds annually in taxes. Thierry Henry is estimated to have saved almost GBP 70,000 and Dennis Bergkamp more than £45,000, while manager Arsene Wenger saved about £118,000 annually. British-born players were able to cut their tax rate from 40% to 25%.

The decision to declare these schemes illegal and to tax these payments has been taken by HM Revenue & Customs (HMRC), a merger of the former Inland Revenue and Customs as part of a campaign against tax avoidance in football. Club’s Chairman Peter Hill-Wood said: “We thought we acted perfectly legally. We are not the only people who have been doing this.”

The club’s tax scheme was revealed in documents in a court case of former player Ray Parlour. Parlour, who was forced to disclose his salary details to the courts, showed he earned a pre-tax package of GBP 1,557,267 for 2001/2 season on which he paid GBP 350,000 tax, a rate of just 22%.

The club however, already put aside GBP 11m to cover the HMRC bill, and it will detail it in its forthcoming annual report.

Arsenal is not the only club known to have used such schemes and The Times reported that the tax investigation has been discussed by the Premiership clubs, which are considering whether to make formal representations to the Treasury and that a spokesman for the Premier League said he was aware the Revenue was looking at tax savings on wages and Value Added Tax (VAT) relief on agents’ fees. Payments of more than £4m to agent’s fees have also been ruled not to be an “acceptable business expense” and now Arsenal must pay an extra £700,000 Vat on these payments.