The Sunday Times ran a front page article this weekend about how Wayne Rooney pays just 2% tax on a portion of his earnings.
The article says that a company 100% owned and controlled by Rooney (“Rooney Ltd”) receives a portion of his pay from Manchester United that can be fairly attributed to his image rights.
Thus, the payments are made to the company on invoice, and with no deduction for PAYE or Employees National Insurance. In addition, Manchester United pays no Employers National Insurance.
Rooney Ltd has apparently lent Rooney £1.6m in two years, and the Sunday Times article made a big deal out of the fact that the only tax that Rooney has personally paid on this income is at 2%.
This is true, because the loan will be treated as a Benefit in Kind. As a result, an assumed interest rate of 4% will be applied and Rooney will pay tax at 50% – thus 2% overall.
However, I doubt HM Revenue & Customs (“HMRC”) is losing sleep over the loans. Why?
Rooney Ltd will pay corporation tax at 28%. This is akin to income tax because the company is 100% owned by Rooney.
In addition (and this is the bit that the Sunday Times article overlooks) if the loan made to Rooney is not repaid within 9 months of the year end in which it was made, Rooney Ltd will need to pay 25% of the loan outstanding as additional corporation tax.
So, to run the numbers: To be able to loan Rooney £1.6m out of taxed profits, Rooney Ltd must have received income of £2.22m and paid corporation tax on this amount at 28%, therefore £622k. In addition, the company will pay £400k of additional corporation tax when the loan is not repaid. Add these two amounts to the 2% Rooney will pay individually on the benefit in kind (£32k) and the total tax handed over to HMRC is £1.054m – an effective rate of 47.4% on the £1.6m, just 2.6% less than Rooney would have paid anyway.
There are a lot of good points made in the article, but it is a shame that the facts were not fully researched, because the receiving of loans from an image rights company is not the huge scam it is made out to be. The scandal is probably more the whopping fee advisors will have charged Rooney for largely ineffective advice.
HMRC are actively hunting down these image rights companies, but this is because of the National Insurance that is lost – but that is a different story…
