English football faces another blow in its attempts to lure top foreign players after the Inland Revenue signalled its intention to shut down a loophole that many top players have been using to protect their wages from the taxman.
Over the last 18 months, as clubs try to hurdle the problem of losing out on players put off by the new 50% top level of income tax that will be introduced next April,a large number of sides have been using a scheme known as EFRBS to allow players to avoid making such payments.
It is understood that clubs such as Manchester City and Chelsea have used EFRBS — employer-financed retirement benefit schemes — in order to make their offers to players even more attractive.
Completely legal at present, the scheme allows players to sacrifice up to 50% of their wages at source to be placed in a trust that is set aside for their retirement.
It was first used by city bankers to avoid paying tax on their bonuses but has become very popular with footballers after the Inland Revenue closed down the “image rights” loophole that was used to great effect in the late 1990s and early part of the last decade to give predominantly foreign players tax relief.
The EFRBS scheme also allows clubs to save on National Insurance payments — an extra 12.8% on top of the player's salary — because the money is paid straight into an EFRBS and is therefore not liable.
With wage costs going inexorably upwards for the elite players, fuelled by Man City's willingness to break the wage ceiling, clubs are increasingly looking around for more tax-efficient ways of paying their best players.
Industry experts believe that there is a very good chance that Wayne Rooney's new deal at Manchester United, understood to earn him up to £200,000 a week including bonuses, would have included an EFRBS.
It would potentially mean that the Manchester United striker will have a substantial retirement fund when he finishes playing.
However, the Premier League's best players, as well as high-earners in the City, are now the subject of government legislation to close the tax loophole.