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Taxed to fail

Whatever the tax rate, there will be some businesses that will fail, but that would survive if the tax rate was slightly lower. Football clubs are no exception. Rangers has gone into administration because it can not pay its tax bill.

Mr Clark said: “HMRC have been working closely with the club in recent months to achieve a solution to the club’s difficulties. However, this has not been possible due to ongoing losses and increased tax liabilities that cannot be sustained.”

On the radio I heard all this explained, and the member of the public interviewed for opinion blamed it on the high wages of the footballers. Sometimes people can not see what is right in front of their faces. I imagine this will be blamed on everything but excessive taxation. In any case, Tim Worstall explains that footballers’ wages are high because clubs can charge high admissions prices, not the other way around.

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10 comments to Taxed to fail

  • Robert

    I don’t think the problem is high taxes. Companies generally go bust due to one of two reasons: either what they do is not economically viable, or they are badly managed. In the case of Rangers its the latter; the business management at Rangers is atrocious (as it is at many football clubs). That it is a tax bill rather than another kind of bill that they are unable to pay is purely coincidental.

  • Sam Duncan

    I tend to agree with Robert. I’m no football fan but it’s hard to avoid it in Glasgow and the way I see it, while Rangers’ rivals across town, Celtic, may be doing rather better on the field lately, they’re pretty evenly-matched in terms of support and I can’t see any reason at all other than management that their financial situation should be much – hell, any – different. The two aren’t called the “Old Firm” for nothing: unlike some (most?) cities’ sports rivalries, neither side has been dominant for very long over the other, and together they dominate the Scottish League to the extent that to all intents and purposes it’s usually a competition for third place. They’re almost like two financially-independent subsidiaries of the same club, hence the joint nickname.

    Given that, I find it hard to accept any other explanation for this than spectacularly poor management. Which is really no surprise to Glaswegians: despite the religious bigotry that’s always been associated with the Firm making the rivalry even more intense than most, it’s long been accepted by all that Celtic is the better-run business (this has been particularly evident over the last couple of decades as merchandise and branding have become more important: Celtic’s is just better). Rangers is its equal despite the people running the club, not because of them.

    A club with a fanbase as large and as fanatical as the ‘Gers shouldn’t be in trouble, whatever its tax bill. Although it can’t be helping.

  • ‘Financially viable’ of course being possible at much lower margins without a huge tax bill.

  • Paul Marks

    Sadly the international elite think that the British Corporation Tax is “too low”.

    Watch out for “world governance” (totally different from World Government – that is “paranoid) in such things as (for example) the “global minimum tax”.

  • Point taken, Robert and Sam. Nonetheless, what wh00ps said, especially in general.

  • Bruce Hoult

    I’m a bit confused. Is this an income tax bill? Income taxes are paid only if you’re making a profit. Businesses that go out of business are generally those who are making losses, in which case there is no tax.

    I guess it’s possible somehow to have a paper profit from e.g. appreciating assets, but a cashflow problem when it comes to paying the tax. One ought to be able to get a loan to cover that.

  • Laird

    I have no knowledge of the particular circumstances of these taxes, Bruce, but I can tell you that in the US many states and municipalities have “gross receipts” taxes which you owe whether or not you make a profit. They’re generally very low in percentage terms, but when you’re already losing money they really hurt.

  • Peter MacFarlane

    Word on the street is that this is all because of some fiddle the club set up years ago to avoid paying the income tax due from their players. Since most of those are foreigners, they’re long gone and the money’s gone with them.

    And now the scam has come back to bit the club in the bum.

    But all of this might well be just bar-room gossip.

  • @Peter MacFarlane:

    Yes, the ‘fiddle’ you speak of is known as an Employee Benefit Trust and it is believed that Rangers were on the hook for £43 million quid.

    Obviously, this is a matter of some dispute with HMRC, by going into administration, Rangers have gained protection from their creditors, but I doubt very much that HMRC will give any leaway over the £43 million quid unless the decision goes against them.

    The net result of all of this is that Rangers goes bust and is either Phoenixed by an angel investor or by a collaboration of fans agreeing to support the club in return for future ticket concessions, etc.

    All very doable, but it means that whatever happens, HMRC will see very little of the dodged £43 million quid even if they win the verdict on EBT’s.

    (Link)

  • Paul Marks

    If a business is taxed hard in good years it can not take the bad years.

    A classic example is private pensions in Britain.

    From 1997 onwards (every year) their investments were taxed hard (by Mr Brown the Chancellor) – so when the bad years came……

    By the way on American States and business tax.

    Laird is right – a State that proudly says “we have no Corporation Tax” (such as Texas) may have a business tax by another name (as Texas does).

    Only a very few States (such as South Dakota) really do not have a general business tax under some name or other.