A former top football agent, Jerome Anderson, has lost his £1.2m tax battle over a £3m claim for sideways loss relief on investment in a soccer academy, after an Upper Tribunal found in favour of HMRC.

Anderson worked successfully as a football agent for many years, representing a number of big name players including Arsenal stars Dennis Bergkamp and Thierry Henry. 

In January 2009 he paid £3m to Bafana, a soccer academy in South Africa, which was established to train and nurture young footballers and to promote their prospects in the European footballing leagues. In return Anderson was able to choose three players from the academy, securing an interest for himself in any future transfer fees.

Bafana went into administration in 2011 and Anderson claimed trading losses of £3,002,772 in relation to Bafana in his 2008/09 tax return. On 2 May 2012, HMRC issued a 'discovery' assessment under section 29, Taxes Management Act 1970 which disallowed all of the losses claimed. 

This was subsequently upheld by a First Tier Tribunal (FTT) which denied sideways loss relief on the grounds of lack of commerciality and lack of profit motive and because Anderson fell foul of anti-avoidance rules.

Anderson appealed and the case went to the Upper Tribunal, which has now agreed with the FTT that the extent of his activities with Bafana did not constitute a trade. [Jerome Anderson and the Commissioners for Her Majesty’s Revenue and Customs, [2018] UKUT 159].

The Upper Tribunal shared the FTT’s opinion that Anderson’s activities in taking financial advice, holding meetings and viewing DVDs of players were more akin to those of an investor.  Even if the activities had amounted to trading, Anderson was not carrying on the trade on a commercial basis with a view to a profit.

The Upper Tribunal found that the FTT had been entitled to conclude that Anderson’s arrangements with Bafana were relevant tax avoidance arrangements. The judges also agreed with the FTT that the HMRC had made a valid discovery assessment, noting that the FTT had applied a stricter test than was required; as to the question whether the HMRC officer reasonably believed that there had been an insufficiency of tax, the test was a subjective one whereas the FTT had applied the test objectively.

This was the first case to consider s74B Income Tax Act 2007 which is an anti-avoidance provision that denies an individual any sideways loss relief claimed where that individual carries on a trade in a ‘non-active’ capacity and where that loss arises in connection with tax avoidance arrangements.

Penny Ciniewicz, HMRC’s director general for customer compliance, said: ‘The court has made it clear that these schemes don’t work.

‘Anyone who’s caught up in tax avoidance and who wants to put it behind them should come forward now and settle what they owe.’

Mr Anderson's lawyer, Keith Gordon, declined to comment.

Jerome Anderson and the Commissioners for Her Majesty’s Revenue and Customs, [2018] UKUT 159 is here

Report by Pat Sweet