What can businesses learn from the mismanagement of Rangers FC?
In a bid to tackle outstanding PAYE bills, Her Majesty’s Revenue and Customs decided to tackle football clubs.
Many high profile clubs were left facing administration, often resulting in a significant deduction of points and relegation, while the off-the-field issues spiralled further out of control.
Portsmouth dropped down two divisions in the space of a few days, a situation which eventually forced them into company administration, while a similar fate was to greet Rangers FC.
Following years of financial mismanagement, the club found itself burdened with massive debts, somewhere in the region of £100 million and on the verge of going out of existence.
Rangers, prior to their financial troubles, operated a tax scheme known as an Employee Benefits Trust. These trusts provide business owners or senior employees with a facility into which they can deposit large sums of money before asking a trustee for a loan.
The interest paid on the loans is minimal and amounts to a fraction of that which is due under a standard salary which would be subject to PAYE and National Insurance.
Somewhere in the region of £50 million is alleged to have been paid into these trusts, meaning the taxman was eventually owed somewhere between £25 million and £35 million.
Too big to fail
The downfall of Rangers FC shows that no company is too big to fail, as dropping to the fourth tier of Scottish football aptly demonstrates.
The club might now be firmly on the road to recovery, but what happened to the famous giant of Scottish football should not be forgotten by other companies throughout the UK.
SMEs should take careful note and ensure that any schemes they are part of fulfill the requirements for tax payments.
Financial mismanagement could destroy smaller businesses, if outside trusts and funds are not properly set up.
It is therefore vital that they learn from the past, and the growing list of examples of businesses which have ultimately failed.
A pre pack administration is another option that a struggling business can take, which can often result in the business continuing as a going concern under the right conditions.
By Phil Smith