I was gob-smacked by an article in this weekend’s Independent on Sunday about the Premier League and corporation tax entitled “football’s tax shame”. The article claimed that last clubs paid only £3 million in corporation tax, despite being “awash with money”. On the back of this worthies such as Gerry Sutcliffe, former sports minister, and Simon Hughes, deputy leader of the Liberal Democrats (part of the present UK coalition government), came forward to declare the situation a disgrace and in need of urgent reform.
Journalists who write about the business of football usually know about one or the other, seldom both, which means they often struggle with the part they don’t understand. In this case the writer, Paul Gallagher, appears particularly challenged in relation to both accounting, economics, and just the basic facts.
In the financial year 2010/11 the combined pre-tax losses of clubs in the Premier League was £308 million, largely because 68% of their £2.3 billion turnover was paid out in player wages. At some level, pretty much everyone knows this- football clubs lose money because of the prune-juice effect. Manchester City on their own reported a loss of £169 million. Football clubs are awash with money in the way that the Titanic was awash with the Atlantic Ocean- sinking into it rather than floating on it.
Corporation tax is a tax on profits, so if you don’t make profits you don’t pay corporation tax. More than anything else, this is main reason that clubs don’t pay corporation tax. Omitting this basic fact seems eccentric to say the least. As a matter of fact, clubs do pay substantial taxes to the government through PAYE, national insurance and VAT – amounting to £924 million last year according to Deloitte, the accountants.
Most people also know that UEFA’s Financial Fair Play is designed to force clubs to spend within their means, precisely because most clubs are loss-making, not profit-making and therefore do not have any profits on which to pay tax.
Gallagher seemed particularly overwrought about deferred tax allowances. As a matter of fact he rang me up last week to ask about these, without telling me the main thrust of his argument. The problem here is that he doesn’t seem to understand what is going on. He seems to have looked at the tax figures specified in the profit and loss account, and is wound up about tax losses from the past being used to offset current tax liabilities, in those very few cases where there are any profits to report. However, if he’s concerned about taxes actually paid rather taxes rather taxes accrued, he should be looking at the cashflow statement.
More likely he didn’t look at any accounts, but relied on the word of others, because he doesn’t know how accounts work. I might be wrong, but judging from what is written, it certainly looks that way. I emailed him after I read the article asking if he could explain his bizarre conclusions, but he didn’t reply.