Hearts to face Revenue and Customs in tribunal over £1.75m tax bill

• Claim relates to players loaned from FBK Kaunas
• Only small percentage of their wages was paid via Hearts

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Ewan Murray
guardian.co.uk, Friday 26 October 2012 13.43 EDT

Vladimir Romanov at Hearts' Tynecastle ground in 2005.
Vladimir Romanov, the Lithuanian businessman whose Ubig group owns Hearts, at the club's Tynecastle ground in 2005. Photograph: Danny Lawson/PA

Hearts will become the latest Scottish club to face Her Majesty's Revenue and Customs in a tax tribunal, during a hearing scheduled for 11 days next month.

Hearts have been issued with a bill for £1.75m which HMRC claims is due in taxation for a batch of players on loan at Tynecastle from the Lithuanian club FBK Kaunas up to seven years ago. Those players routinely earned weekly salaries of thousands of pounds but only a tiny percentage of that was paid via Hearts.

HMRC claims tax on these full salaries should have been paid in the United Kingdom, rather than in Lithuania, where rates are considerably lower. Hearts argue the scenario was no different to any routine loan player arrangement, when wages can be subsidised by parent clubs.

At the time of the payments, Kaunas were controlled by Vladimir Romanov, the man behind the Ukio Bankas Investment Group (Ubig) which also owns Hearts. Hearts have referred to the tax case in their annual accounts dating back to year end 2009 but had previously failed to specify its exact nature, even upon questioning at their annual general meetings.

The Edinburgh club have stressed there is no comparison with the employee benefit trust scheme which led Rangers towards their high-profile tribunal with HMRC worth tens of millions of pounds, which is subject to an as-yet unconfirmed result, and that the football authorities are not in pursuit of them. Linked to the Rangers affair is an ongoing investigation by the Scottish Premier League regarding allegations that the Ibrox club illegally registered their players during their employee benefit trust years.

Hearts have launched a share issue seeking £1.79m from supporters in exchange for a 10% stake in the club; Tynecastle insiders are adamant the close proximity of that figure to the tax issue is purely coincidental. A brochure detailing the share scheme will go live online on Friday evening and will include the tax case as a potential risk. HMRC declined to comment.

Despite assurances in the football club's annual report, Ubig is apparently now unwilling to meet any financial shortfall; Hearts are currently subject to a transfer embargo from the SPL because of the late payment of player wages.

Hearts' present salary bill is thought to be in the region of £7m per year, with the club looking to halve that burden. A string of their highest-earning players, including Marius Zaliukas, Andrew Driver and Andy Webster, will run out of contract at the end of this season.

Taken from the Guardian/Observer