Failure to report your taxes can get you more than a red card

It was reported that the former Aston Villa striker John Carew has been sentenced to 14 months in prison after pleading guilty to charges of tax evasion in his native Norway.

The 43-year-old admitted failing to report taxable income and assets of around £26.7m between 2014 and 2019.

Mr Carew said he thought he did not need to pay tax there as he lived abroad. But Norwegian prosecutors provided evidence showing he was in Norway more than 183 days a year during that time, which made him eligible to pay tax.

Unfortunately, cases such as these, where former footballers fall foul of the tax authorities, are becoming more and more common. The increasing complexity in legislation and in many footballers’ tax affairs means that it is easier to fall foul of the rules. As a result, footballers and their agents/advisers need to ensure that they obtain comprehensive advice in respect of their tax affairs.

Although Mr Carew was prosecuted in Norway, there are lessons to be learnt from the case that can be applied to the UK tax system.

Failure to Notify

In the Carew case, there was a failure to report taxable income and assets in Norway. In the UK, if an individual fails to inform HMRC that they are required to submit a tax return, it is known as a “Failure to Notify”.

Players’ main source of income will generally be the salary that they receive from their club. This will be liable to tax, and the club should be subjecting this income to PAYE (i.e. collecting the Income Tax and NIC at source).

However, it is very rare for top-level footballers to only have this one source of income. They will quite likely receive additional income from sponsorship deals and media appearances. The income received from these sources is unlikely to be taxed at source and, as such, it is the responsibility of the player to report it to HMRC and pay any tax due. This should be done via a Self-Assessment Tax Return, which is due for submission to HMRC by 31 January following the end of the previous tax year.

If a player fails submit a tax return and therefore “fails to notify” HMRC of their tax liability, then HMRC can charge substantial penalties of up to 100% of the tax due for these failures, as well as imposing other sanctions such as publishing the name of the individual on the ‘Deliberate Defaulters’ list in more serious cases.

One point is clear that, if mistakes have happened in the past, it is always preferable to come forward voluntarily and disclose the failure (or omission from a tax return to HMRC), as this can help mitigate penalties and the potential sanctions. However, professional advice should be sought on the best way to make your disclosure.

Overseas Issues

The international nature of top-level football means that there is a potential added layer of intricacy to a player’s tax affairs.

Personal tax compliance across two or more countries can be complex, and players will need detailed expert advice for their individual circumstances in all relevant jurisdictions. This may include planning for, and reporting, overseas image rights, sponsorship and endorsement income, together with consideration of the Double Taxation Agreements. Some of these issues, including residence, are highly complex, and there are a number of pitfalls which may require expert navigation to avoid.

Where mistakes have been made in respect of overseas planning, again the best route forward is to make a full disclosure to HMRC. BDO are experts at making such disclosures to HMRC.