By Paul Nicholson
October 6 – Newcastle United have lost the first legal round of the case against brought against them by the UK tax authorities. A court has ruled that the dawn raids on the club’s office on April 26 were legally authorised and that there are grounds to suspect the club has “systematically abused” the tax system.
The timing of the court proceedings is awkward for the club and the resulting investigation could be inconvenient if it goes deep into Newcastle’s transfer dealings just as owner Mike Ashley opens potential sale talks with foreign buyers.
The raids by the UK’s tax investigators were in the main club office premises at St James’ Park, its training ground at Darsley Park, and the home of managing director Lee Charnley. The warrants authorised access to eight other premises connected with football agents and players associated with Newcastle,
With the court having ruled against Newcastle’s claim, HMRC tax investigators can now examine the documents and computers seized in the raids.
The investigation centres around suspicions the club was enabling players to avoid income tax and employee’s national insurance (a state tax) contributions, while at the same time the club was avoiding its own national insurance contributions. This in turn facilitated the club to inflate tax (VAT) refunds from the government.
Allegations are that Newcastle made payments to agents acting for the club but who in fact were “secretly” transferring the money “to intermediate and ultimate recipients so as to benefit the player or the player’s agent.” The payments were never declared as income by the players or agents enabling the club and the player to avoid tax. The club was actually declaring player wages far below the real money that was being paid.
If proven, a consequence of the scheme is that Newcastle appeared to be paying its players far less than other clubs, though in reality they were able to pay the same, if not more, by using the chain of overseas intermediaries to avoid tax liability.
If the scheme is proven by HMRC the tax liability for the club will likely run into many millions and the criminal cases against the individuals involved will almost certainly result in jail time.
How far up the management hierarchy the scheme details were known is unclear. Charnley is a close associate of Ashley though court documents show that he was not approached by HMRC for fear that if he began his own investigation he could tip off those involved and evidence could be destroyed.
The example used in court of the kind of fraud suspected to be in operation was the ransfer of Demba Ba to Newcastle from West Ham. HMRC said: “It appears NUFC paid agent’s fees for services of £1.9m in full knowledge that the majority would be passed on to other agents… and to a company associated with the player.”
HMRC is also investigating the transfers of Sylvain Marveaux, Moussa Sissoko, Davide Santon and Papiss Cissé,
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