Taxman's war on football goes on despite costly Redknapp defeat

HM Revenue and Customs remains determined to shine a light into some of the sport's murkier financial corners

The taxman is carrying out an unprecedented inquiry into football finances. Detailed questionnaires quizzing directors and other officials about player payments and other commercial dealings have been issued to clubs across the UK. The Revenue is also tackling outstanding tax debts and is warning that failure to pay will increasingly be met with red-card treatment.

The determination of HM Revenue and Customs (HMRC) to sort out football's finances comes as it is smarting over criticism of its handling of the high-profile prosecution of Harry Redknapp and Milan Mandaric on tax dodging charges. Both men were acquitted by the jury after a 13-day trial. HMRC defended the prosecution of the two men for allegedly cheating the public revenue out of £189,000, insisting it was "important to get the facts in front of a jury".

It has been stung by criticism that it fails to treat people equally, a reference to parliamentary criticism that "cosy deals" with big businesses meant that firms such as Goldman Sachs and Vodafone had enjoyed favourable treatment while small businesses and individuals faced prosecution.

HMRC warned clubs and their advisers that it will no longer treat the game, with its chequered financial history, its reputation for "inadequate rigour" and questionable transfer dealings, with the tolerance the sport has previously enjoyed.

It is also cracking down on the late payment of taxes and National Insurance contributions. Last year, 40 winding-up petitions were sought against companies that own clubs in the Premier League, the Football League, the three divisions of the Conference and the Welsh Premier League. This was more than double the previous year's total of 19. Harsh economic conditions are partly to blame, but a tougher Revenue stance is the main reason according to tax advisers. Winding-up orders have been sought against clubs as diverse as Plymouth Argyle and non-league side Windsor & Eton.

The crack down is already paying dividends, with Premier League clubs clearing their outstanding tax liabilities. Steve Menary of the Sportingintelligence website, which has investigated football's tax problems, said the Premier League was the only one of the UK's senior leagues to have no tax outstanding.

According to Sportingintelligence, Premier League clubs owed the taxman £27.4m at the end of the last tax year. Although the bulk of this was attributable to the financial problems of Portsmouth, the League moved quickly to pay off the debts completely. The Premier League's spokesman Dan Johnson said: "Our clubs are run on very sound accountancy practices that make it very difficult [to run up debts]. When combined with our HMRC reporting provision and the welcome new stance of HMRC in ceasing to indulge football, mainly smaller Football League clubs, we think that it is an issue that is sufficiently mitigated."

Football League clubs as well as clubs in Scotland, Wales and Northern Ireland and scores of lower league clubs in England have also been affected by the get-tough policy. In Scotland, Glasgow Rangers is disputing a tax bill and penalties of £49m.

HMRC has also launched a landmark High Court battle to stop the so-called football creditor rule whereby clubs and their employees are paid ahead of other creditors if a club becomes insolvent. The rule means that other clubs or leagues get preferential treatment ahead of all other creditors, including the Revenue. Critics of the rule say it is unacceptable to allow highly paid footballers to be first in the queue of creditors ahead of cash-strapped small businesses and charities such as the St John Ambulance. In court it was described as the "ugly side of the beautiful game".

HMRC's continued crackdown on tax avoidance among the UK's football clubs has resulted in special units being set up in Solihull and Worthing. The Solihull team is carrying out a wide-ranging investigation into payments by clubs to foreign players, some of which have been channelled through companies that control players' image rights. An HMRC spokesman said: "We are aware of the attempts to use image rights as well as other schemes to avoid the 50 per cent rate of tax. The taxation of image rights is a complex area where the tax treatment will very much depend on the facts of the particular case."

Speaking on Friday, Harry Redknapp repeatedly questioned why he had been prosecuted. "It was farcical," he said. "It was only [taken to court], as my barrister kept saying, because it was me. Four times we tried to get it thrown out. My barrister was saying this should not be going to court."

An HMRC spokesman later denied the decision to prosecute was determined by the high profile of Redknapp and Mandaric, but many tax lawyers believe the Revenue spotted an opportunity to send a clear message to the monied world of soccer that financial probity was not something to be taken lightly. Mr Justice Leonard QC, summing up to the jury in the Redknapp trial, said football had the power to "stir in an individual deep passion". But he also said it could provoke "resentment for a sport that some might say has become so commercial it may have lost its way".

Harry Redknapp's and Milan Mandaric's acquittal on tax evasion charges at Southwark Crown Court last week meant further damage to English football's reputation for dodgy dealing avoided another battering, but critics believe that notwithstanding the not-guilty verdicts, football remains on trial.

The broker's tale: 'It's easy to go after football agents. Nobody likes us'

Football agent Willie McKay has been called many things during his colourful career. "Parasite", "opportunist" and "chancer" are a few of the printable adjectives. Those from fans and administrators of clubs who have suffered at the sharp end of the Glaswegian ex-bookie's hard-nosed negotiating style are fruitier still.

One of the politest came from Ken Macdonald QC, who described him as "the spectre at the feast" during a hearing leading up to Harry Redknapp and Milan Mandaric's tax evasion trial. Macdonald, barrister for Mandaric, was alluding to the fact that in the prosecution's view McKay was central to the high-profile tax trial but was nowhere to be seen when the case finally came before a jury. McKay, who from the outset denied any wrongdoing, was one of the first people arrested six months after the City of London police inquiry commenced in April 2007. He would wait two years before he was publicly exonerated.

"I had 30 police officers raiding my home at six o'clock in the morning [on the day of his arrest]. It was baseless right from the start. I always said that there was not a stain on my character. Finally I have been totally vindicated and cleared," he said afterwards.

For all the suspicions and the investigations that have tinged the Scottish multimillionaire's career, no mud has stuck to his reputation as one of football's wiliest agents. From a humble start in 1996 which saw French player Alain Horace move to Ayr United, earning him a reputed £500 fee, he has been instrumental in scores of high-profile transfers, including Marcel Desailly's move to Chelsea, Laurent Robert's £11m transfer to Newcastle and Nicolas Anelka's £13m move to Manchester City.

The son of a former used-car salesman was questioned during a French judicial inquiry into controversial transfers by leading French clubs. But McKay, who again denied wrongdoing, satisfactorily accounted for all his dealings to investigators. It is believed HM Revenue and Customs' (HMRC) interest in him was stimulated by a file from its French counterparts.

Similarly, when the English Premier League asked the corporate investigators Quest to examine alleged financial corruption in football, the inquiry initially named him for not co-operating and questioned four of his deals. Later Quest, led by Lord Stevens, a former Scotland Yard commissioner, clarified that it was satisfied there was no evidence of "irregular payments" involving McKay. In 2008 he was given a suspended ban for breaching transfer regulations when Zimbabwean striker Benjani was transferred to Manchester City. In response, he accused the English FA of conducting a "witch hunt".

McKay, who is also a race-horse owner, continues to act as an agent. He has called for an official inquiry into the HMRC investigation, which he described as a major scandal. "The most important thing is I've been cleared and my name and reputation restored, but the damage has been done in the last two years. It's easy to go after football agents. Nobody likes football agents." He is guilty of one thing, he insists. "Being successful at my job, and a lot of people don't like it."

David Connett

Timeline: How the legal investigations came to nothing

December 2006 Lord Stevens's Quest inquiry into Premier League transfers concludes, with 17 deals remaining under suspicion. April 2007 City of London Police launch Operation Apprentice based on information received from "inside football" about potential money laundering.

August Police question David Sullivan and Karren Brady of Birmingham City.

September Tottenham full-back Pascal Chimbonda arrested on suspicion of conspiracy to defraud and false accounting. Subsequently released on bail. November Willie McKay, Peter Storrie, Milan Mandaric and Harry Redknapp arrested on suspicion of conspiracy to defraud and false accounting.

June 2008 Chimbonda is cleared.

June 2009 McKay is cleared of allegations.

August Sullivan and Brady cleared of wrongdoing.

January 2010 Redknapp and Mandaric charged with cheating the public revenue.

October 2012 Mandaric and Peter Storrie cleared of tax evasion.

February 2012 Jury clears Redknapp and Mandaric.