The orange doesn't fall far from the tree

Rangers and the £1m R&D tax issue

To paraphrase the tabloids, another ‘tax bombshell’ has hit Scottish Football – Research & Development (R&D) tax credits is the latest wheeze the snake oil salesmen have managed to convince the gullible in our game is a fantastic rouse for free money from HMRC. Dundee Utd & Hibs being two big clubs that have set aside a contingent liability in their accounts for the likelihood or repaying the revenue.

The last big tax bomb to hit our game killed one of our biggest clubs and I have no doubt Rangers will be extra diligent to ensure they don’t repeat the sins of their father. They wouldn’t fall for another tax wheeze would they….WOULD THEY…?

Nearly £1m in R&D tax payments in their accounts you say?

As Britney would say - Whoops they did it again!

Tax doesn't need to be taxing, or so the advert used to go, but of course it is and for good reason. Governments use taxation to generate revenue but they also use taxation, particularly on businesses, to create incentives. Once a scheme is created it starts to become a cat and mouse game between governments and advisors around making the tax incentives work the way the government want, set against the increasing ingenuity of tax advisors to utilise these incentives in a way that they were never intended for clients who are not part of the government's target. One such tax incentive scheme recently brought to the attention of the public is the R&D scheme. The research and development scheme.

The idea behind this scheme is to encourage companies to innovate, to make changes that in the first instance may cost them money, but in the long term brings value to their business and value to the industry and spur companies onto the magic word of the hour with the government GROWTH.

Of course, every time there is an incentive out there for businesses to do something different a raft of snake oil salesmen appear with their schemes about how companies can make use of this tax credit. But as we saw with EBTs in the past, if you own a business and the snake oil salesman is telling you to do something that your gut feel is not within the spirit of the tax rule, eventually you can come a cropper.

These snake oil salesmen will propose their schemes on the premise that it's been okayed by HMRC, but of course those with a closer knowledge of the taxman than I have will know that HMRC never okay things. What HMRC do is they say something is not a valid scheme or a valid use of our tax break, or they will say nothing at all. And if they say nothing at all, there's always the possibility that it comes back and bites you on the bum.

This week, the Times broke the story that 28 football clubs had been using the R&D tax break in a manner that HMRC did not agree. In Scotland, we have Dundee United being at the forefront of the story because they have a contingent liability on their accounts, i.e, they have a section on their accounts ready to pay out on the high probability that HMRC will come and ask for its money back. But that might not just be Dundee United who have utilised this scheme to their advantage. A closer look at accounts of Scottish football clubs will alert you to a Glasgow Club who you would think would know better, who appear to be repeating the sins of their father.

The ruse of this system is basically that if you have a player out injured, and the initial advice from the medical staff is that they're going to be out for (eg) 8 week but you get them back in just after five, then your medical research and development resulted in that three-week saving. You therefore get a tax break.

There is an R&D budget, which quite genuinely the government cannot give away, and so a whole industry has popped up to make claims for tax credits or repayments. It's like the wild west. Consultants will come up with a scheme and make a claim, and if they get it through, they try to sell it to others in the sector. Most clubs, including Celtic, were approached. We dismissed out of hand on the basis of if it walks like a duck and quacks like a duck…it's a duck, and that scheme is not for football. It doesn't sound like it's for football, it doesn't look like it's for football, ergo it's not for football.

As mentioned, Rangers accounts show:

à Year-end 2022 - £125,000

à Year-end 2021 - £550,000

à Year-end 2020 - £188,000

à Year-end 2019 - £26,000

à Year-end 2018 - £34,000.

That club had benefited to a margin of £873,000.

This is more than the £800,000 they got for all those transfer’s last season.

This revenue for a business will either be a cash payment or a reduction to their corporation tax liability. It is hard cash, not just accounting speak. Based on the fact that a certain club don't pay corporation tax, and who knows when they will ever pay tax due to the scale or brought forward losses, they have received that hard cash in their hand.

If the tax man comes calling, it's not just going to be £873,000 he wants back, it'll be interest and penalties – likely to be hitting £1m+

28 football clubs made the news in the Times, and Dundee United (and today Hibs) made the news here in Scottish football. These clubs have a contingent liability on their accounts, no doubt because HMRC have already come knocking on their door. I’m not privy to the detail of the usage, and HMRC may already have approved the use of the tax break in this instance but I suspect there may soon be (if not already) a closer investigation into a club that you would have thought, with all the past history, would have run a million miles from any tax scheme that wasn’t 100% legitimate have utilised it to the extent of £873,000.

Like father like son. In this instance, the orange doesn't fall far from the tree.