Avoiding or Evading? Do the tax authorities care…

Taxation and football have been in the news this week in the UK.

First of all we had winding up orders threatened on Southend, Cardiff City and the Premier League team Portsmouth on Wednesday. If a winding up order happens the clubs as corporate entities will be liquidated. In simple terms this means that the football clubs cease to exist.

The courts have allowed all of them a “stay of execution” but it’s not a great deal of time. Portsmouth, for example has to prepare a “statement of affairs” by 4pm next Wednesday.

The reason for the winding up order on Portsmouth is that HMRC (the UK tax authorities) took them to court over an unpaid tax bill of over £7 million. Whilst there are lots of emotional and community issues behind winding up a football club, HMRC take the view that it is simply another business that despite repeated requests has not settled its debt.

Another tax / football story in the press this week was yesterday when Harry Redknapp, the Tottenham Hotspur manager, was charged with tax evasion. He allegedly evaded tax on a payment made to him in Monaco. The case was adjourned to April.

This leads to a point which students often get confused about. Namely, the difference between “tax evasion” and “tax avoidance”.

“Tax evasion” involves methods of illegally reducing tax liabilities. “Tax avoidance” however is legitimately minimizing tax liabilities. It should be noted though that “tax avoidance” doesn’t sound particularly legitimate (even though it is) so a number of advisers are now referring to “tax avoidance” as “tax mitigation”!

All of this could be of little interest to the supporters of Portsmouth though if they are wound up next Wednesday. We shall wait and see.