Wednesday, February 15, 2012

BLOG 120


I noticed a headline recently in (the profession’s online gossip column), “HMRC urged to meet with Portsmouth FC by PM”. Surely, I thought, HMRC is wholly independent of the government. It is outrageous for the Prime Minister to publicly tell it what to do. Then I thought that surely he wouldn’t do that, so I looked it up in Hansard. And yes he did. He called on HMRC “to meet the club so that it recoups the tax it is owed”. He added, “We must do everything we can to keep the friendly rivalry [between Portsmouth and Southampton football clubs] going”.

I’m a football fan. My club, West Ham United, got into financial difficulties. Two mad, millionaire businessmen, David Gold And David Sullivan bought it for far more than it was worth and have put a lot of money into it since. Mad, because commercially it would have been far more sensible to let it go into liquidation and buy the club, shorn of its debts, from the liquidator. I am grateful to the two Davids. But if they had not come along, I would not have expected taxpayers in Portsmouth, or in Manchester or Liverpool or anyone else, to give financial support to the club.

So why should the Prime Minister urge HMRC to talk to Portsmouth FC? It is a club that has been fighting off winding up petitions by HMRC since at least January 2010 (the last was issued on 24 January this year). Is Portsmouth FC too small to fail? It owes HMRC £1.6million, which is almost certainly VAT and/or PAYE. HMRC will have given this private company every opportunity to pay up prior to issuing its winding-up petition. I have never known them not consider a reasonable proposition for tax to be paid by instalments where cash flow projections show that the proposal is viable. HMRC know that if the club is wound up, they will have to write off most of the debt, as the footballing authorities have somehow created a system where, if a football club goes into liquidation, it has to pay the exorbitant salaries due to players and the huge transfer fees due to other clubs, before anyone else sees a penny out of whatever assets might remain.

Portsmouth FC may be important to Portsmouth as David Cameron suggests – although my recollection is that a lot of small businesses in Portsmouth have themselves been forced into insolvency because they did work for the football club and found themselves unable to recover the debt from it, so Portsmouth does not look that important to Portsmouth FC.

Personally I would have felt far comfortable if David Cameron were to ask HMRC to go easy on those very small businesses who suffer massive bad debts because bigger businesses ask them to do work knowing that they cannot pay for it. But as far as I am aware, he has not done so.

Indeed, when a very small business cannot pay its VAT or PAYE, in my experience HMRC get far more aggressive than if it cannot pay income tax or corporation tax because they claim (rightly, albeit unrealistically) that a business receives VAT from its customers, and deducts PAYE from salaries, as a trustee for HMRC, so they are not entitled to use such money towards their own running costs.

David Cameron however, apparently, has no compassion for very small businesses that incur bad debts. Let them go to the wall! I am not sure what he does have compassion for. He did not urge HMRC to talk to Woolworths or to Peacocks or to any other of the companies that have become insolvent over the last couple of years. It is only on behalf of Portsmouth FC that he urges leniency. Indeed, HMRC have also issued a winding-up petition against Heart of Midlothian FC and he has not urged HMRC to talk to them, even though, unlike Portsmouth, they have not already been talking to HMRC for the last two or three years over which HMRC have clearly lost patience – and I suspect have suffered a succession of broken promises.

Portsmouth has a population of around 207,000 people of which on average around 14,400 or around 7%, seem to regularly support Portsmouth FC. I would not myself have though that 7% suggests even that the club is important to the residents of Portsmouth as a recreation in these tough times. Edinburgh’s population is over twice that of Portsmouth so logically, if Portsmouth FC is vital to Portsmouth, Heart of Midlothian FC should be doubly important to Edinburgh, yet Mr Cameron has not urged HMRC to talk to Hearts.

So why does David Cameron want to urge HMRC to talk yet again to one private company in a provincial town? After all he is intent on separating retail banking from merchant banking so that in future no bank is too big to fail. It is some time since I looked at the statistics, but my recollection is that the vast majority of winding-up petitions are served by either HMRC or another government body. What is so important about Portsmouth FC that he should so want to single it out for special treatment? Is Portsmouth FC too small to fail? Or too important to the local economy to fail? Surely not! So why is Portsmouth different to Hearts? Surely it can’t be because Portsmouth has a Conservative MP and Hearts does not? Surely the Prime Minister puts the interests of the country before those of the Conservative party?

The real answer, I imagine, is that the Conservative MP for Portsmouth North asked him to call on HMRC to help Portsmouth FC to survive, and he didn’t have the guts to tell her that a business that pays salaries that it cannot afford, and as a result incurs massive debts, does not deserve to survive. That would have been honest. Indeed it is probably in the best interests of Portsmouth FC to be put into liquidation and for it to be resurrected freed of its massive debt burden (the administrator of its insolvent parent company has said that he will sell it only to someone who has £100million of finance available to pay for/put into the club). But that might lose a few votes for the Conservative party at the next local elections, so why not ask the taxpaying populace for forbearance so as to help the Conservatives?



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