What image rights fiasco??

Only seen a bit of rumour-mongering on the Wakey forum? Hardly rumours flying round the boards?

That said, if Leeds lose the image rights case, of if anyway the eventual settlement with HMRC is not good, I would expect most SL club entities to go straight into Administration. Most are either technically insolvent (as entities) or are solvent (like Bulls) but lack the resources to fund a substantial tax settlement. That, btw, is one reason why I can't help but think there are other motives behind the HMRC actions.

Leeds - the entity - would be one of the very few that could probably take a big hit and survive.

Clubs like Wire and Hudds have sugar daddies and parent companies with net assets - e.g. through coming heir to a stadium cheap. But the actual RL club entity is seriously badly insolvent, and would go immediately if the parent/sugar daddy withdrew support. So their route looks simple - let the entity go and transfer franchise and players to parent or Newco.

If all this happens, what happens next? Easy. With the RFL's blessing, a load of phoenix clubs spring up overnight, to which the franchises, players and everything else that can be kept out of the hands of the administrators is assigned. And no points deductions since this would be a game-wide calamity.

The biggest losers through such actions would likely be HMRC and (very unfairly) Leeds.

The above is a very simplistic summary, but write it down someplace, just in case.

As for whether Bradford are especially vulnerable as an entity? With no sugar daddy and no subsidiary RL club entity that could be allowed to go, then yes quite possibly IMO. But is it likely the RFL would have awarded Bradford a Licence, and a B grade at that, unless they fully expected a Bradford club to be playing in SL for the next three years?

Excuse my ignorance, but what is the Leeds' image rights case all about?

Thanks, I was going to ask exactly that question but was too embarrassed to admit I had no idea what Adey was on about

[urlhttp://www.guardian.co.uk/sport/2009/apr/01/super-league-inland-revenue-offshore-payments[/url

[urlhttp://www.guardian.co.uk/sport/2009/sep/27/rugby-union-guinness-premiership[/url

I'm sure there is a mamoth post coming from someone but my understanding of it is:

Clubs were paying (or third parties) what was effectively salary as image rights.

This avoided the clubs having to pay employers NI and were a tax avoidance scam, albeit one the clubs thought was legal.

Revenue have challenged that, said they should have been paying class 1 National Insurance (Employers NI) on it and want to back date it to shortly after the big bang.

Leeds are in court on it at the moment arguing against the back dating. Various other clubs also have exposure to it.

Basically we are all in the unenviable position of supporting Leeds on this one! Oh and it wasn't just us, football was using this aswell which is where it got picked up from. If you google that you will get loads of football references but the issue is the same.

Karma's a bitch, isn't it?

Good old Leeds. As much as we are hated we do think about RL as a whole not just ourselves

Not just the Wakefield fans but total RL board too.

leeds are fighting becuasr RU only pay I think 15% so Leeds are taking the Court action as a RUGBY club, apparently the HMRC do not recognise RL as a national game and theres the problem.

I have only heard rumours but some clubs owe in excess of a million pounds, if leeds win then then this will be reduced to 15% of the sum. Its looking unlikely based on rumours but there are some clubs with rather large tax bills apparently if this comes off.

Talk on RL fans is mass administration.

With regard to Wakefield we owe nothing due to administration our tax debt was sorted.

HTH

Adey, I thought we had Bradford Bulls (holdings) tied in with Bradford Northern (1964) Ltd? Is this not the same as the others, a holding company with a subsidiary?

The theory/rumour I heard about the Bulls was that because the image rights issue goes back a few years, it covers those years when you were winning grand finals and had the highest profile players, which doesn't reflect the financial realities now. It might have been said because it seemed logical rather than it being real, but it does seem logical.

I wouldn't worry. Admin won't count against you, thanks to the Welsh boys, and you're a grade B club. At least it will get people off Wakey's backs, because it was the Crusaders admin that sent us into admin, because the tax man withdraw an agreement they had with the clubs about tax.

It's an anti-league policy, and it will suit the HMRC right if it turns out that we've got a better sidestep than they thought.

Bradford Northern (1964) ltd changed its name to Bradford Bulls Holdings Ltd in 1996 (IIRC). Same company. It has a subsidiary, Bradford Bulls Ltd, which operates the lotteries. It is not like e.g. Wire or Hudds (or Leeds for that matter) where there are one or more holding companies above. For example, Leeds is a subsidiary of Caddick Group plc - the only SL club to be owned by a commercial trading group.

They can go back 6 years for error/mistake, but 12 years for fraud or deliberate evasion.

I continue to have difficulty in seeing how any such deals can have fallen into the latter category. If HMRC win AND are able to go back 12 years, that would indeed encompass the time when we were good. Although even if not, assuming they can go back 6 years from the tax year under review, these investigations started a while ago so you could still catch the later part of our "before we were crap" years.

Indeed.

Bit of expansion on a couple of points:

If you pay a substantial part of an overseas player's package as "image rights", how it usually works is that the player sets up a personal service company in a tax haven - say Guernsey, but can be far more exotic. The player sells his image rights to his PSC, which then invoices the club. The club then merely pays the invoices - and pays the player a lot lower salary as a result. This saves employers' NIC (was 12.8% until the recent 1% increase). That saved the club money, and USED to be a nice dodge to avoid the salary cap when the cap value included employers' NIC. However, the RFL got wise to that which is one reason why the cap value is lower but does NOT included NIC.

But the REAL advantage was that the player received 100% of the payment, not 59% as would be the case if the image rights income was subject to tax and employees' NIC. This is because no NIC is payable on such payments, and if the money is invoiced from an offshore company and paid offshore then it can be paid gross (and for any contractors out there, IR35 did not apply). Provided the overseas player did not remit the funds to the UK, being a non-dom he escaped liability to UK income tax. The HUGE advantage to clubs here was that you got massively more bang for your bucks. Pay £100k in image rights like this, and the player gets £100k. Pay it as salary and he would need over £169k to get the same net.

And folk wonder how some clubs seemed able to to have such good squads for the supposedly fixed salary cap!

This has happened in other sports, although RL has the particular issue of it being used as a device to dramatically extend the salary cap.

The REAL HMRC target is soccer, where there may be £BILLIONS at stake. Their strategy has been to try and pick off the weaker (i.e. can't afford the lawyers) sports first - Cricket, Union and RL. Get some precedents established then go for Soccer. Something which (going for Soccer, that is), as a UK taxpayer, I totally applaud.

The problems for RL are twofold:

1 - HMRC have been contending that a maximum of 15% of a player's total package can be paid as image rights free of tax - whereas allegedly some clubs have been paying more than 50% (a charge that has frequently been levelled at Wire, albeit without evidence in the public domain). So the excess has to be treated as a "net" payment to the player, and "grossed up" for tax and NIC. - i.e. £100k excess means a tax bill for £69k - and double that with interest and penalties.

2 - HMRC are FURTHER contending that RL is not a "national" sport, so therefore players' images are worthless. Even though "independent" third parties seem prepared to pay large sums for players like Scully, and doubtless for numerous others that we are not told about such that said players are happy to play for certain clubs for a lot less than they otherwise would be. This means that, far from 15% being allowed ZERO is allowed so ALL club-paid image rights payments are subject to Tax and NIC. The Leeds test case is in respect of this last point as well as other issues like the back-dating, as I understand it, since they have both Union and League sides and are contending discriminatory treatment.

By way of background, HMRC are still smarting from losing the "David Beckham" case a few years ago, when Man U successfully argued that Beckham's image rights had massive value, and therefore they were justified in paying him megabucks in that form.


It is not just image rights. HMRC are also contending that the highly-legal device of paying big pension fund contributions was also tax avoidance, as were much more dodgy schemes like payments into Employee Benefit Trusts.

Bulls have said in their annual accounts that they may have some exposure to the image rights issue, should HMRC prevail. They have also said (and it is my understanding) that there may be an exposure in respect of pension payments, which they are vigourously contending. They say that there was no liability under EBTs. You see similar notes in the accounts of other clubs that have to file full accounts. Leeds referred to EBTS as well, for example.

Whenever I have asked the question, I have always been assured that some other clubs (no prizes for guessing...?) are far more exposed than we are. Of course, they may have sugar daddies with deep pockets too.

If HMRC win, and are allowed to bring everything into the pot and go back many years, then it is likely to wreck the finances of pretty well every SL club that has not already avoided the exposure by going bust and being reborn. Maybe that is someone's ulterior motive - who knows?

If they win, I would expect a shedload of RL clubs filing immediately for administration, and phoenix clubs to arise. That is probably the only way that the game could survive a many-millions of pounds backdated tax bill. And the re is no way the RFL could treat such clubs any more harshly than those who have already used this route to escape past liabilities (like Wakey and to an extent Harlequins). Indeed, I have been assuming that one reason for the very lenient treatment of such clubs is because the RFL know what may be just round the corner for most of the rest.

That is perhaps the "long post" you feared? It is a mixture of fact, deduction and supposition and aspects of it can doubtless be improved upon by those who have more knowledge.

Don't know about feared but I did settle down with some lunch!



Cheers for the info.

Perhaps the most intriguing thing about the most recent set of Leeds accounts was that, as noted in the directors' report, "it has been considered prudent to create a provision for possible liabilities arising from an industry-wide challenge by HMRC the outcome of which has yet to be concluded." Have any other clubs (esp thinking of Wire) felt the need (or been pressured by their auditors...) to stick a provision in? Presumably PKF followed the little flowchart at the back of FRS12 and concluded that there was a present obligation arising out of a past event, that a cash outflow was likely and that the amount could be reliably estimated. All of which in itself is not very reassuring regarding how the players in this case expect it to go.

Nowhere is the amount of the provision stated, but an unscientific analysis of the tax note to me suggests something in the region of £525k. Which explains how Leeds managed to produce an overall loss for 2010. Thankfully the club had £4m in cash or nearish-cash at the year end, this being squirrelled away for the South Stand redevelopment. So they at least would survive but I can visualise Hetherington's face at having to write a cheque for anything approaching that amount, never mind exceeding it.

Thats really interesting. Thank you everyone.
And although it pains me....well done Leeds for fighting it.

As I have noted elsewhere, Leeds can afford it. The sugar-daddied clubs can afford it PROVIDED the sugar daddy continues to put his hand in his pocket and underwrite the RL club company. Provided the accounts continue to state that the owner will provide financial support then I guess all is well there. Wakey are clear of course. Crusaders are dead already. One remaining club stands out as being especially vulnerable. When the annual accounts for most clubs are filed due 30/9, I guess we will see whether liabilities previously classified as "contingent" have been upgraded in the way Leeds have clearly found it necessary to do. Should that be the case, I fear we may see the start of what I have outlined.

could preparing for the possiblity of having to pay out on this issue be behind the 5 year season ticket offer club did earlier in year. you said at time that club could be looking to generate a cash reserve.

I guess it could be one possibility. I think it is important to stress though - very strongly - that thus far we have seen or heard nothing officially to suggest the club (or any other club) has any material exposure to HMRC. The Leeds Rugby vs HMRC case is continuing. Therefore all this discussion can be is speculation. I do think, though, that it is important for fans to be aware of just how significant the actions of HMRC might be to Superleague should they carry the day. The effect could be to take millions of pounds out of a game already strapped for cash, and at pretty short order. I fear most fans do not realise the peril.

Very murky waters ahead by the sound of it! Maybe this was the reason lewis's b**ch wasn't prepared to say on boots n all that if clubs failed to live up to there frenchise agreement they would automaticaly be thrown out of the league as previousy stated by the rfl. Very intresting read as usual adey! And a big come on leeds ( oh dear, did i really just say that)

So it's "come on Leeds" then!

Strange, but true - yes it is.

I take it you are referring to Saints.

Saints had to take out a bridging loan to cover the season away from KR, and construction of the new stadium.

By generating a few million quid up front via 5 year Season tickets, Saints are assisted in paying for the stadium and covering this bridging loan.

Nothing suspicious about it.

From Saints point of view i think the club will take any tax hit that may occur on the chin, because they possess not only rich backers, but valuable real estate in the form of a new stadium, which will be owned by the Saints.

Some other clubs without that level of backing, and who do not own their own ground, might however find the going very tough in the short term.

Its noticeable that a number of clubs have been taking "hair cuts" of late, with little in the way of recruitment. Players going out seem to be greater than those coming in, with the emphasis being purely on bringing low cost juniors through the system. It does make me think this is a case of clubs cutting their cloth accordingly, in anticipation of a financial apocalypse.

I assume Mat was referring to the Bulls 5/10 year deals.

He was referring to our own long-term deals offered this year (and yes, I DO know cos we discussed it in PM). Nothing to do with Saints whatsoever.