UK tax authorities probed Manchester City in 2018 over whether it used complex arrangements to underpay tax, nearly a decade before the club was found to have breached the Premier League’s financial rules.
HM Revenue & Customs opened a civil investigation into Man City’s tax affairs in the wake of the publication of a trove of leaked internal emails by Der Spiegel in 2018, according to people with knowledge of the situation.
The emails prompted a Premier League investigation, launched in December of that year, into whether the club had manipulated its accounts and disguised funding from owner Sheikh Mansour bin Zayed al-Nahyan, a member of Abu Dhabi’s ruling family, as commercial revenue.
Last month, an independent commission found that Man City had artificially inflated its financial position by more than £900mn between 2009 and 2018 by arranging “sham” commercial deals. The club allegedly paid former manager Roberto Mancini through a consultancy agreement, which reduced its costs.
The verdict has sent shockwaves through European football and poses a fresh test to UK-Emirati relations.
HMRC’s earlier probe, which was never formally closed, was conducted under a so-called Code of Practice 8 [COP8] investigation — a civil inquiry used by the authority when it suspects a person or company may have used complex structures for tax avoidance, the people said. COP8 investigations do not involve suspicions of deliberate fraud.
The club instructed external lawyers to advise it on the probe, the people said. Man City argued to HMRC that there was nothing untoward about its commercial arrangements, according to one of the people. HMRC has not taken any action, the people added.
Man City and HMRC declined to comment.
The independent commission found City guilty of all but one of the 115 charges laid against it, ranging from arranging sponsorship deals to disguise funding from its owner to breaching the competition’s spending limits.
City lodged an appeal last week, saying its “firm position is that, on multiple grounds, the opinion contains clear material errors of law, principle and fact and is unsafe”.
“The club is innocent of the accusations made by the Premier League and a comprehensive body of irrefutable evidence exists in support of all of its positions relating to this case,” it added.
Government ministers believe that the extent of the alleged financial irregularities will prompt HMRC to intensify scrutiny of Man City, which has won the Premier League eight times since 2009. One senior minister said it was “inevitable” that the new allegations would be looked at by the tax authority.
Dan Neidle, former head of tax at Clifford Chance, the law firm representing City against the Premier League, analysed the leaked documents published by Der Spiegel and estimated a £12mn tax shortfall at the club.
This includes an alleged £8.86mn payment to Mancini, its former manager, through a sham consultancy arrangement.
Mancini, now head coach of the Italian national team, was asked about his City contract at a press conference last week.
“It’s not an issue that concerns me. It’s nothing new because this matter has been discussed for the last four or five years,” he said. “It’s their issue, not mine.”
The chair of the Treasury select committee, Dame Meg Hillier, wrote to HMRC last week about the Premier League’s investigation into the club.
Hillier asked John-Paul Marks, permanent secretary of the tax authority, for reassurance that he is “seized of the importance” of the case.
Neidle, who now heads up the Tax Policy Associates think-tank, said it would be hugely surprising if HMRC had not been looking closely at City’s books already.
“I’d hope that they opened an enquiry when they saw the 2018 leaked documents. It’s possible they could have given up, or that there is still a live enquiry going on today . . . I would be surprised if nothing is happening,” he told the FT.
Additional reporting by Josh Noble