The Debate: Football clubs and the Revenue

Revenue should cease leniency

By Lee Manning

The Inland Revenue has long been accused of being the catalyst for the spate of administrations of football clubs in recent years.

The suggestion that the Revenue should reflect upon the way it deals with insolvent football clubs – adopting a more lenient approach – is at odds with the objective of promoting better financial management.

Often clubs owe many months of unpaid PAYE/VAT in circumstances where they are keeping up-to-date with their ordinary suppliers and obligations to fellow clubs and so on.

In the past, the Revenue has only acted in circumstances where its reasonable efforts have been stonewalled by recalcitrant clubs who have preferred to keep their more valued creditors at bay.

This leniency has arguably been given in view of the Revenue’s preferential status and its (perhaps misguided) ability to insist on payment in full in any CVA, which is the conventional mechanism for an insolvent club to retain its Football League membership.

It is arguably the very leniency of the Revenue that has led clubs to continue to incur losses and accumulate liabilities rather than dealing with creditors head on at a stage where insolvency was obvious, because no other creditor has the temerity to force the issue. If the Revenue were to adopt a more relaxed approach, the likelihood is clubs might be encouraged to incur even greater losses.

It would be perhaps wise for the Revenue to be encouraged to report those clubs to the League that are defaulting at an early stage in paying. Perhaps a more modest points deduction (currently 12 points) could be introduced.

This would serve as a warning to other creditors that its finances are impaired, thereby promoting better corporate governance within the football community.

Preventing clubs from getting out of control at an earlier stage may leave them with more manageable problems for financial restructuring.

Recent examples are unlikely to encourage the Revenue to be more lenient with defaulting clubs who will no longer see it as an alternative banker.

• Lee Manning, business recovery partner at Kroll.

Why have double standards?
By Damian Wild

When York City emerged from administration earlier this year, Accountancy Age took a phone call from a local radio station. Why, the reporter asked, would the Inland Revenue insist on recovering 63p in the pound of York’s debt to the taxman when it was willing to accept just 10p in the pound from Leicester City, another club that had recently emerged from administration? It was a fair question.

The Revenue is under unprecedented pressure over its treatment of football clubs. A group of MPs have forced a meeting with paymaster general Dawn Primarolo so they can put their demands for an ‘overhaul’ of the way the Revenue tackles recovering tax liabilities from stricken clubs. Pointing to the disparity between the settlements reached with Leicester and York, they will tell Primarolo that the taxman is failing to act equitably.

Not for the first time a debate around a sport is generating more heat than light. Since business began, creditors of companies and individuals have accepted differing settlements. Ability to pay is a significant factor but there are many others at play too. But in debates like this one emotions usually play a greater role than common sense.

And that’s not all on the Revenue’s plate. In the eyes of some, it is the taxman that is causing clubs to go into administration. It hardly needs saying, but this is nonsense. Imagine a situation where the taxman did not pursue debts because it was dealing with an emotive business like football. Wouldn’t we all be asking why any of us were handing money over to Revenue?

And remember Enron and Andersen? Think back to how the debate there became so polarised that at one stage it seemed that everyone had forgotten that it isn’t auditors that make companies go under, it’s companies that make companies do that. This debate is in danger of heading in the wrong direction too.

The Revenue does have legitimate questions to answer about why it treats different clubs differently. And it could do more to explain the way it behaves. But, this time at least, the taxman isn’t the problem itself.

• Damian Wild is editor of Accountancy Age.