Martin-Redman Partners writes:
Some 100 players are seeking assistance from the PFA, with 40 receiving assistance from Xpro, the welfare organisation for former players. It is understood that 20 are anticipating personal bankruptcy.
A number of years ago, a number of investment schemes giving large tax shelters to high earners, were promoted heavily to footballers as a way of saving tax and making investment profits. HMRC took the promoters of these schemes to Court and have so far, produced a home win, allowing them to issue demands for the disputed tax in advance of a final result. (Please see the original article at http://www.theguardian.com/football/2015/jan/23/footballers-tax-demands-hmrc).
Schemes that claim to mitigate tax carry the risk that the HMRC will attempt to have the scheme declared ineffective and the tax demanded at a later date. When that demand comes, bankruptcy is a common outcome, as the capital available to pay the demand is no longer available.
Everyone earning a large income must put aside enough to pay the tax bill that is likely to arise at some time. For Premiership footballers and pop stars with short careers, this is especially important, as the bills are likely to fall at the end of a high earning career. Although it is not fashionable, there is much to be gained by taking up all of the tax incentives offered for saving and investment before looking for anything more exotic.
Pensions and ISAs have now been around for a long time and it is unlikely that these tax shelters will be changed within a Parliament, so there is likely to be continuity. Only after you have taken up the maximum entitlements for these should you look for anything outside of the mainstream. For 2014/15, the maximum into an ISA is £15,000, with the declared policy of government being raising the limit to track inflation in future years. For pensions, the annual limit is £40,000 per year, with restrictive rules allowing you to take up allowances not taken up in full in previous years.
Once you have had your fill of those, the next place to look are the established tax concessions like the Enterprise Investment Scheme, (EIS) and Venture Capital Trusts, (VCT), making full use of Capital Gains personal allowances and using a corporate structure for some trading activities.
Once all of these have been exhausted, then start to look at more complex schemes, on the understanding that they may not work in the long term.
Paying tax is always uncomfortable, but it is essential for the greater good and represents a clear and impartial way of evidencing your income. These days, mortgage providers want to see your tax returns and proof of acceptance by HMRC as proof of income. Be too successful with minimising your tax bill and no one will lend you the money for the “trophy house” you might otherwise have bought!
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The information contained is for guidance only and does not constitute financial advice. It is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change. Accordingly no responsibility can be assumed by Martin-Redman Partners its officers or employees, for any loss in connection with the content hereof and any such action or inaction.
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