Hearts ‘hopeful’ of mounting successful defence in tax case

HEARTS director Sergejus Fedotovas said yesterday that the Edinburgh club are “hopeful” they can provide documentary evidence that they are not guilty of a potentially devastating tax breach, but laid bare the seriousness of the overall financial problems at Tynecastle.

With the club due to face a tribunal next month to answer claims that they owe Her Majesty’s Revenue and Customs £1.75 million in unpaid taxes relating to players loaned to them by FBK Kaunas, Hearts have warned that if the tribunal rules in favour of HMRC, it will have a “dramatically negative effect on the company”.

However, Fedotovas believes they can provide sufficient proof that no regulations were circumvented during the dealings, which occurred up to seven years ago.

He said: “This tax case brings us back to 2005 and 2006, and some years after that, when players have arrived on loan from Lithuania, and we are facing a case in relation to the earnings of these players in Lithuania.

“We believe we can defend this case, we are bringing documents together and preparing our defence. We are hopeful that all the evidence that we produce will be able to defend this case successfully.”

The news of the tax case was presented as part of an information pack made available to supporters as Hearts launched a share issue scheme, which they hope will raise around £1.8m. Fedotovas has been blunt when spelling out the consequences if the strategy proves a failure with supporters, many of whom have reacted with alarm to news of the tax case.

Hearts are currently £22m in debt, have released a plethora of senior players in recent times, have failed to pay wages on time in seven of the last 12 months and are under an SPL-imposed transfer embargo until 23 December.

While claiming that “administration is the wrong word”, Fedotovas admits that – the tax case aside – things could yet get considerably worse for Hearts.

“Financially the situation is quite serious,” he said. “We have exhausted all possibilities available to the club. There is significant instability in the revenue streams. We need to put in place a strategy to react to that.

“The revenue that this club generates with the help of the products available to us, whether that’s ticketing or sponsorship or other things, is not sufficient. The cost of the squad that won silverware last season is £8m and our income is just short of £7m. The share issue is a signal and an alarm to the people who are truly concerned about the club. If this strategy fails the club will be faced with a tough financial reality.

“The answer to that would be another dramatic cut in costs and I don’t think anyone will be happy with a weak team and poor results.”

While Vladimir Romanov’s Ukio Bankas Investment Group is reportedly no longer willing to meet any financial shortfall at the club, Fedotovas defended the club owner’s position, stating: “In a simple way, if he wouldn’t be behind the football club today, probably this football club wouldn’t exist. Our Lithuanian shareholders have invested £60 million since 2005 and it has all gone to the benefit of this club, to the benefit of the results that this club has achieved. There is no other agenda.”

Hearts striker John Sutton, meanwhile, said that the players have been worried by the club’s financial state for some time and said the tax case was the latest in a long line of concerns.

“We are really worried about it, but I can’t say it’s anything new,” he said. “Since I’ve been here there’s always been a couple of issues floating around on the financial side of things.

“But the board have been open with us and hopefully as players we can do our bit.”