Jon Thompson, HMRC CEO, was giving evidence to the public accounts committee (PAC) which is holding an inquiry into high net worth individuals (HMWI) and tax. He said the greatest risk came from a combination of the way image rights are treated for tax purposes and the fact that many players in the English Premier League are non domiciled in the UK.

Thompson told MPs that as a result of a court case in 2000 brought by an anonymised club against HMRC, the legal agreement was that a player could have two income streams, one from playing the sport and a second from the use of image rights, which is effectively a rental payment for an intangible asset.

‘The vast majority of these players incorporate themselves, and therefore are paid gross for their image rights from the rental of the asset. Since a significant number are non doms, that money is then paid to a company which is outside the UK.  A player from Italy, for instance, may already have a company set up when he comes over to a UK team for three years, so payments continue to that overseas company. That is the most significant risk,’ Thompson explained.

Currently HMRC has 43 players, eight agents and 12 clubs under investigation, largely in connection with image rights.

Thompson told MPs that HMRC has a voluntary agreement with the ‘vast majority’ of the 56 clubs in the English Premier League, Championship and Scottish Premier League, plus the top 500 players and the top 25 agents, to collect information about image right payments. The aim was to establish thresholds for payments to create a ‘reasonableness’ test.

‘There have been cases where we have queried player payments – when you get some reserve player no one’s ever heard of getting enormous amounts for image rights,’ he said.

Thompson, a self-confessed football enthusiast, said he felt many fans would find such arrangements ‘rather convoluted’ and think it ‘very odd’ that someone who plys their trade in the UK does not pay tax on a significant element of their earnings.

‘It is quite difficult to explain the current situation, and if I was a minister I would want to review this. However, we have to operate under the law as a result of the case in 2000,’ he said. 

Thompson said HMRC was working with the Professional Footballers Association to develop an educational programme so that players understood the tax rules. A particular concern was the use of marketed tax avoidance schemes, with Jennie Granger, HMRC’s director general, enforcement and compliance, giving evidence that around 100 footballers were or had been under investigation in relation to such schemes.

However, MPs were told that the numbers of sportspeople in the group of 6,500 HNWI that HMRC has reported on is relatively small, with the majority making their money from business, investments or property.

Thompson told MPs that, as of March, HMRC had investigations into this group relating to £1.9bn of potential tax, of which just over £1bn relates to film partnerships and other aggressively structured tax schemes.

There are about 3,000 such schemes still in operation, creating disputed tax liabilities of £14bn. Thompson said the most prolific investor in these schemes had 68 such investments.

He told MPs that HMRC had completed an informal consultation on whether HNWIs should be required to provide the UK tax authorities with more details about the source of their wealth, including what they held overseas. A report is with ministers currently.

In an update to the work of the £10m taskforce set up to look at data from the Panama Papers leak, Thompson reported that there have now been two arrests. In both cases, the tax issues related to the beneficial ownership of UK property in disguised offshore structures.

Thompson said only a small amount - £500,000 had so far been settled. Some 22 individuals are being investigated, while 43 HNWI individuals who are mentioned by name in the Panama Papers are being reviewed.