Making a bad situation worse

If you bought a badly run business that had defrauded the national treasury for a decade, and which had frustrated legitimate enquiry into its tax affairs at every turn, you might want to turn over a new leaf. If you planned on running the business for the medium or long-term, you would want to normalise your relationship with HMRC. A couple of goodwill gestures would not go amiss. Certainly, you would not want to make things worse.  Would you?

Of course, divining the thought processes of Craig Whyte is not an easy task. Trying to see a path for making an “on the radar” profit from his ownership of Rangers is even more difficult. Whyte’s strategy for keeping Rangers alive in the short-term is a little easier to see.  No bill of significant size gets paid without legal action. Lawyers, tax advisers, or even the taxman himself, Whyte does not appear to play favourites.  Since taking over Rangers on 6th May of this year, Whyte’s Rangers have been deducting PAYE and national insurance from  players’ salaries. However, the club has not been passing this money on to HMRC.  In fact, the club has fallen behind on current remittances by an amount that is fast approaching £2 million.

This is aside from the “Big Case” and its £36m in tax and interest (with penalties to be added). This is aside from the “Wee Case” and its £2.3m (tax and interest) that remains to be paid (plus approximately £1.4m in penalties). This is a new and completely separate dispute between Rangers FC and Her Majesty’s government.

If these new (and accumulating) amounts are not paid soon, it is inevitable that the well trodden path from Ibrox to The Court of Session will once again be taken to force Whyte to make good on the legitimate debts incurred by his company. This will mean that yet another law firm shall be getting paid handsomely, up-front, for a bill that cannot be sensibly disputed.

The obvious question: is this fraud? The answer is no- it is not. One thing about Whyte is clear: he is not short of advice on where the edges of the law exist.  By simply neglecting to submit monthly tax returns, Whyte is able to avoid criminal charges i.e. Rangers are making no declarations to HMRC about how much they are paying employees. Rangers can continue failing to pay the tax withheld from wages to the government for quite a long time without risking fraud.  In the meantime, HMRC will be able to take Rangers to court and press for a winding up order or an arrestment. These measures would seek to obtain the money that should have been paid already (plus interest and penalties), but would be a civil process.  The pattern seems well established: Whyte would pay this bill on the court steps if it does not suit him to file for insolvency at that time.

In fact, Whyte has until 19th May 2012 before he has to submit a P35 Annual Return. It is only at this time that Rangers must submit an accurate accounting of what salaries have been paid and what taxes are due. If Whyte was to lie on this form, he would be exposing himself to the wrath of an organisation that must surely be enraged by all things Rangers.  By not making a declaration of what taxes are due, Whyte avoids fraud charges on a technicality. Yet, money is being taken from wages and not being submitted to government as employees would expect. From April 2012, HMRC will have the power to demand that businesses involved in the deliberate non-payment of PAYE & NIC effectively pay tax up front in the form of a bond.  If The Rangers Football Club plc is still trading at that time it will be a prime candidate for this treatment. Likewise, these new powers apply to phoenix companies. So Rangers, in whatever form they exist by the end of this season, will run out of rope to continue disregarding UK tax law.

If we took the integrity of our national game seriously, the sport’s administrators would intervene when things got this extreme. However, this is Scotland and our game has been rotting from more than two decades of maladministration. The financial crisis in which Scottish football finds itself today is such that sporting integrity would not merit a second thought if it meant keeping the root of the problem alive. Only the most naive would believe that any meaningful punishment will ever be applied against Rangers’ myriad wrong-doings. However, the SFA/SPL need to concern themselves with the long-range problem of how many people will continue to pay to see a competition in which certain clubs are insulated from the consequences of their own actions.