The trials of Harry Redknapp and Milan Mandaric have generated considerable interest. This is hardly surprising given the profiles of both defendants in the football world. Both are accused of “cheating the public revenue”. The use of a Monaco bank account in the name of Harry’s dog Rosie added a piquant touch. (Even more intriguing was the revelation that the bank in question already had an account in the name “Rosie”).
But what is the taxation principle involved in this case?
Harry Redknapp received a payment while he was an employee of Portsmouth Football Club. That is undisputed.
The key question is “what was the payment for?”
Was the payment a personal gift from Milan Mandaric, or was it a payment “from the employment”. (A payment doesn’t have to be from the employer to be from the employment.) Personal gifts aren’t subject to income tax.
The law on this point has been succinctly summarised:
"… while it is not sufficient to render a payment assessable that an employee would not have received it unless he had been an employee, it is assessable if it has been paid to him in return for acting as or being an employee."
Did Harry receive the payment “in return for acting as or being an employee”?
We’ve been here before.
Immediately following the 1966 World Cup (won by England), Bobby Moore was awarded financial prizes for being the best player in the tournament and the best England player. He also received a bonus from the Football Association, payable if England won the tournament.
HMRC unsuccessfully sought to tax the sums paid on the basis that the payments were for performance of the player’s employment duties.
“The true purpose of the payment was to mark his participation in an exceptional event, namely the World Cup championship – exceptional because the Cup is open for competition only every four years and has never before been won by this country. In other words the payment had the quality of a testimonial or accolade rather than the quality of remuneration for services rendered.”
However, another England footballing great, Peter Shilton was less fortunate. He challenged the HMRC analysis of payments made to him on his transfer from Nottingham Forest to Southampton, arguing that they were for loss of contractual rights:
“Mr Shilton made miraculous saves for Southampton because he was an honourable man and a professional footballer and was contractually bound to do his best for Southampton.
“Emoluments amounting to £155,000 may be expected to inspire a goalkeeper to great achievements but that inspiration came as much from the £75,000 provided by Nottingham Forest as it came from the £80,000 provided by Southampton.
“The £75,000 payment was taxable as employment income. It was paid for his carrying out his employment duties. It was an inducement to perform; not compensation for loss of contractual rights.”
The mystery is why this dispute is being heard by a criminal court rather than by a tax tribunal?
