Tottenham Hotspur Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 03 June 2016 |
| Neutral Citation | [2016] UKFTT 389 (TC) |
| Date | 03 June 2016 |
| Court | First Tier Tribunal (Tax Chamber) |
Judge Jonathan Richards, Michael Sharp
Income tax – National Insurance contributions – Whether payments made to employees on termination of their employment contracts “from” their employment – Appeal allowed.
The First-tier Tribunal (FTT) held that payments made by a Premier League football club to two of its players on termination of their employment contracts did not derive “from” their employment and therefore were not subject to National Insurance contributions (NICs), and were only subject to income tax above the £30,000 threshold.
The appellant company is the parent company of Tottenham Hotspur Football & Athletic Co Ltd (Tottenham), a Premier League football club. In August 2011 Tottenham agreed terms with two of its players, Peter Crouch and Wilson Palacios (the Players) which involved the Players leaving Tottenham to join Stoke City Football Club (Stoke) and Tottenham making payments to the Players. Both of the Players were employed by Tottenham on fixed-term contracts of employment. Mr Crouch's fixed-term contract commenced on 28 July 2009 and expired on 30 June 2013. Mr Palacios's contract commenced on 9 March 2009 and expired on 30 June 2014. In 2011, Tottenham wished to reduce its wage bill so it wanted to transfer the Players to another club but both players were reluctant to move. Eventually, Tottenham and Mr Crouch signed a “Compromise Agreement” and Mr Crouch joined Stoke. Tottenham also agreed to make a payment to Mr Palacios and he also joined Stoke.
HMRC argued that the payments were earnings from the Players' employment and therefore subject to income tax under ITEPA 2003, s. 9 and NICs under Social Security Contributions and Benefits Act 1992, s. 6. Although the appeal did not involve significant amounts of income tax relative to the amount of payments made, it involved material amounts of NICs.
Tottenham argued that the payments to the Players were made in return for them giving up their rights to be employed until the expiry of the fixed term set out in their contracts. The payments were not made under any provision of their contracts. Accordingly, the payments were in return for the total abandonment of rights under the Players' contracts and not “from” their respective employments.
HMRC stated that the Players' contracts expressly envisaged and provided for termination by mutual consent. The payments were made following a termination by mutual consent and therefore flowed “from” the Players' contracts of employment.
The FTT did not accept that the degree of the employee's involvement in the termination of the employment was relevant as the Court of Appeal decision in Henley v Murray TAX(1950) 31 TC 351 did not attach any significance to such matters. In that case, as in this appeal, the relevant payment was made following a compromise of a potential dispute that the parties agreed between themselves.
There were provisions in the contracts that would have entitled Tottenham to terminate the Players contracts early if particular circumstances arose. However, none of these early termination provisions were engaged in relation to either Player. If Mr Crouch had stayed at Tottenham and Tottenham had followed through with a threat of not selecting him (as set out in a text message to Mr Crouch's accountant), he may have been entitled to request that his contract be terminated under the FIFA Rules and FA Rules. However, in August 2011, this was a threat only and therefore Mr Crouch's right to terminate (or to request termination) had not been triggered. It followed that, with the exception of the right to terminate early by mutual agreement, neither the Players nor Tottenham had any operative right of termination conferred under the Players' employment contracts. The payments that Tottenham made, as part of arrangements to terminate the Players' contracts, were accordingly made in return for the surrender of the Players' rights under the contract and within the scope of Henley v Murray.
The Players' contracts were terminated pursuant to agreements entered into between Tottenham and each of the Players. In that sense, therefore, termination was by mutual agreement (although the Players and Tottenham felt under pressure to reach such an agreement). However, payments made following such a mutual agreement were not within the scope of the principle in EMI Group Electronics TAX[1999] BTC 294 as the contracts had not specifically provided for the payments.
The FTT, allowing the appeal, concluded that the payments under the mutual agreement did not therefore derive “from” the Players' employments and were not therefore subject to NICs, and were only subject to income tax above the £30,000 threshold.
The FTT held that as the contracts in this case were not terminated following a breach of contract, the termination was by mutual agreement. However, the payments made following such a mutual agreement were not within the scope of the principle in EMI Group Electronics, as the contracts had not specifically provided for the payments. It followed that applying the principle in Henley v Murray the payments did not derive “from” the Players' employments.
[1] The appellant company is the parent company of Tottenham Hotspur Football & Athletic Co. Limited, a Premier League football club. In this decision, we will refer to both the appellant and the subsidiary as “Tottenham” except where it is necessary to distinguish between the two companies. In August 2011 Tottenham agreed terms with two of its players, Peter Crouch and Wilson Palacios (the “Players”) which involved the Players leaving Tottenham to join Stoke City Football Club (“Stoke”) and Tottenham making payments to the Players. This appeal concerns the tax treatment of those payments.
[2] HMRC consider that the payments were earnings from the Players' employment and, as such, subject to income tax under s9 of the Income Tax (Earnings and Pensions) Act 2003 (“ITEPA”) and subject to national insurance contributions under s6 of the Social Security Contributions and Benefits Act 1992 (“SSCBA”). On 10 December 2014, HMRC issued determinations under regulation 80 of the Income Tax (PAYE) Regulations 2003 and decisions under s8 of the Social Security Contributions (Transfer of Functions etc) Act 1999 reflecting their view of the nature of the payments.
[3] Tottenham argues that the payments were compensation for the early termination of the Players' contracts and, as such, were not “from” the Players' employments. For reasons set out more fully at [65] this appeal does not involve amounts of income tax that are significant relative to the amount of payments made. However, the dispute does involve material amounts of national insurance contributions (“NICs”).
[4] Tottenham relied on evidence from Matthew Collecott, the Group Operations and Finance Director of Tottenham Hotspur Limited, and from Melvyn Gandz, a partner at BSG Valentine Chartered Accountants, who acted for Mr Crouch in his negotiations with Tottenham in 2011. Ms Nathan cross-examined both of these witnesses. We found both Mr Collecott and Mr Gandz to be honest and reliable witnesses. HMRC did not rely on any witness evidence.
[5] We also had documentary evidence in the form of a bundle of relevant documentation. We have made the findings set out at [6] to [61] below from the evidence before us.
[6] The Players were, at all material times, professional footballers and employees of Tottenham Hotspur Football & Athletic Co. Ltd1. Both of the Players were employed on fixed-term contracts of employment. Mr Crouch's fixed-term contract commenced on 28 July 2009 and expired on 30 June 2013. Mr Palacios's contract commenced on 9 March 2009 and expired on 30 June 2014. At [18] to [47] below, we will set out more detailed findings on the terms of the Players' contracts as some of those matters were in dispute.
[7] In 2011, Tottenham wished to reduce its wage bill as its commercial income had declined given that the club had not been involved in the Champions League in that season. Accordingly, Tottenham wanted to transfer the Players to another club and had identified Stoke as a possible destination. Both Players were reluctant to move. The “transfer window” within which the Players could move from Tottenham to Stoke was due to expire on 31 August 2011.
[8] Even though the Players were reluctant to move, Tottenham did not take express action to terminate their contracts by, for example, sending an express notice of termination or requiring them to stay away from Tottenham's ground or other players. Moreover, even though Mr Crouch had expressed himself reluctant to move, in the week running up to 31 August 2011, his agents were engaged in a dialogue with other clubs (including Stoke) who were interested in signing him as to the terms that would be available were Mr Crouch to join them.
[9] On the afternoon of 31 August, Mr Collecott sent a text message to Mr Gandz, Mr Crouch's accountant, as follows:
Bottom line is player won't be part of 25 man squad and will sit out 2 years – Stoke won't take as asking too much.
Later in this decision we will consider whether this text message amounted to an anticipatory breach of contract.
[10] Mr Collecott intended the first part of his text message to outline Tottenham's bargaining position which was that, if Mr Crouch insisted on staying at Tottenham until his contract expired, he could do so and could continue to receive his salary. However, if he did this, he would not form part of the 25 player squad eligible to play in Premier League matches. Such an action would have an adverse effect on Mr Crouch's career as a professional footballer as, since he would not be playing Premier League football, he would lose match fitness. In addition, other clubs would not see him playing so his prospects of a transfer to another top team would be reduced. It would also have had...
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