Michael Farrow's sports blog

A collection of new and old writings

…on a loss (that somewhat isn’t) for the HMRC

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Andrew Andronikou is very smart and very lucky

I couldn’t fucking believe it when it happened. Pompey joined the long line of court-endorsed footballing tax dodgers by defeating the challenge of Her Majesty’s Revenue and Customs (HMRC) to their Company Voluntary Agreement (CVA). It was essentially a win on a technicality. The massive, ever-changing debts and unethical practices didn’t matter because it came down to whether or not Portsmouth broke insolvency rules and, in the opinion of Mr Justice Mann, they did not.

The HMRC argued that the “football creditors rule” was wrong, that Portsmouth’s image rights payments to players without any brand value was tax dodging and that they had repeatedly done this to the point of running up tens of millions of pounds worth of debt. In a CVA, each creditor has a percentage vote, based upon how much debt the debtor has with them. 75% of the debt must agree to the CVA, in this case 20p in the pound over three years. HMRC argued that is is owed 37m of the 130m debts, enough to block the CVA, and argued this based on the image rights payments to tax havens.  When the vote was taken two months ago, the HMRC were only assigned 24m of debt by the administrator Andrew Andronikou, thus the CVA was passed.

Unfortunately, waiting until two days before the CVA vote to claim an extra 13m of tax, the HMRC made a tactical error, as the administrator could not be expected to verify that sum in two days.  Thus, no extra votes, no extra 10% of debt and the CVA passed.

While the conclusive judgement has stopped the HMRC from appealing, this is arguably because whilst they were defeated, their arguments were not.  Mann did not pass judgement upon their claim that image rights payments are tax evasion, their next front in their war on football financing, nor did he rule in favour of the football creditors rule.  Portsmouth walk away with any potential buyer needing 15m over the next three years to settle the remaining debt, now making the club a viable proposition to be bought.  The parachute payments will be transferred to the UK football creditors by the Premier League and Portsmouth should be debt-free on that front very soon.

HMRC lost.  They lost conclusively but they didn’t have judgement passed against their key arguments in this case and thus they live to fight another day.

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Written by Michael Farrow

August 8, 2010 at 9:31 pm

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