England 1 - 0 Taxman

Dogged by broken metatarsals and searching questions about the best team formation ahead of their World Cup challenge, England's football stars are still displaying stunning vision and tactical nous in their strategy to outflank another opponent: the taxman.

With the prospect of a financial bonanza from commercial spin-offs after appearing at the greatest sporting event on the planet, England's millionaire players will benefit from personal companies that enable them to avoid paying fortunes in tax and national insurance.

Although there is no suggestion that they are doing anything illegal, eyebrows will be raised that such wealthy men representing their country are using clever loopholes to minimise their tax contributions.

The practice does not involve the salary the players receive from the Football Association for actually kicking the ball: this is paid to the players through their domestic club and taxed in the normal way. But the Revenue is eyeing multi-million-pound payments the players will earn off the pitch from promotional endorsements from the likes of Burton, Sainsbury's or Nationwide.

When England players are not just footballers but brands, fees for their 'image rights' can dwarf the amount they earn on the pitch.

England's players stand to receive around £200,000 from the squad's numerous endorsements from firms such as Coca-Cola, even if they are knocked out in the first round. Just sitting on the bench will increase the value of their personal sponsorship agreements, mostly worth between £50,000 and £100,000 for wearing a manufacturer's boots and leisure wear.

The biggest stars - David Beckham and Michael Owen - command millions in additional fees, with the injured midfield star enjoying a £5 million endorsement with boot manufacturer Adidas.

One agent who acts for a stable of international football stars told The Observer that promotional payments will almost certainly be channelled into the players' private companies, a practice he called 'perfectly normal'.

He said: 'They are allowed to do that. It's a business, isn't it? Players will do whatever is best for them tax-wise and try to alleviate their tax burden. There's no point in them getting the World Cup money then paying tax and NI on it. If they do it through their companies, they can at least write off some costs against it.'

Channelling the payments through a company means that, instead of a player paying 40 per cent income tax and 12 per cent national insurance, the fees will be treated as company profits and face a much reduced rate.

For some players this will be as low as 19 per cent, but in certain instances the millionaire stars will pay less because they can claim a string of expenses against profits such as cars and secretarial costs.

Little wonder that this fancy piece of financial footwork is widespread among the England team.

An examination of documents in Companies House revealed that even 21-year-old Joe Cole has three companies. Cole, the 'coming man' of English football for years, set up his first company, JJC Enterprises, in September 1998 when he was still 16. In the year to 30 September, 2001, it held £150,000 in cash. Cole owns it and sits on the board with his mother. He has also set up Joe Cole Promotions and Joe Cole Sportswear.

Beckham is the owner and director of Footwork Productions Limited, set up in 1996 and known until two years ago as David Beckham Limited. It lists its principal activity as 'the provision of the services of David Beckham'.

In the last financial year it reported assets, almost all cash, of £1.4m. The previous year's accounts reveal Beckham paid himself a salary of £302,000, while the company paid tax-deductible 'operating charges' - much of it, presumably, Beckham's expenses - of £481,000. The company paid £20,000 corporation tax and £158,000 in 'social security and other taxes'.

Beckham also owns Yandella Limited with his wife Victoria, the former Spice Girl. Along with her mother, Jackie Adams, the pair are also directors of the company that markets the Beckham brand name. At the end of the year to 31 August, 2000, Yandella held assets worth £156,000, most of it cash.

Michael Owen, Beckham's replacement as England's captain in this morning's final warm-up game against Cameroon, is the major shareholder in Owen Promotions Limited. His parents also have stakes in the company, which has more than £1.2m in assets including cash of £798,000 and 'investments' of £250,000.

The accounts of striker Robbie Fowler are - like a goalscoring run for England - overdue. In the year to 31 March, 2000, the last for which figures are available, Robbie Fowler Sports Promotions was left with £468,000 after paying more than £1m to 'creditors'.

Other players with personal companies include Ashley Cole, Gareth Southgate, Emile Heskey, Rio Ferdinand, Nicky Butt and Paul Scholes, whose company has £346,000 cash in the bank.

Goalkeeper David Seaman owns David Seaman Promotions Ltd with his wife, Debra. Both sit on the board, along with agent Jerome Anderson. In the last financial year Seaman had assets of £979,000 - about half in cash and half in 'investments'. The company had also lent £371,000 to Seaman, on which he was paying a 6.25 per cent interest rate.

He is one of the four England stars on the committee of the players' pool - chaired by Beckham - that has overseen more than £5m in commercial endorsements for this World Cup. Owen and Arsenal's Sol Campbell are also on the committee, which will split the cash evenly between the squad's 23 players.

The FA, which claims to be 'open, transparent and accountable', refused to discuss the issue or answer questions. 'As a rule we don't discuss payments to players or staff with anyone because it's a private matter,' a spokeswoman said.

Bob Russell, Liberal Democrat MP for Colchester, described the practice as 'grotesque', adding: 'Players in the upper echelons of professional football in this country want more and more and more [money],then find ways of not paying the taxes on it that the rest of us would have to pay.'

It is no surprise that the Revenue has become increasingly worried about the use of these personal service companies, which are extensively used by footballers throughout Europe. It is believed they are particularly interested in scrutinising Beckham's latest £82,000 a week deal with Manchester United after reports that the player demanded separate payments for his image rights.

A Revenue spokesman said it was 'monitoring' the situation. Last year the Revenue suffered a blow when it lost an important challenge on this issue. Tax inspectors discovered that Arsenal's Dutch ace, Dennis Bergkamp, was being paid up to £1.5m tax-free by his club for his 'image rights' on top of a playing contract worth more than £20,000 a week.

Bergkamp funnelled this money into a company registered in the Dutch Antilles. The Revenue argued that the money should be taxed because it was inextricably linked to the football playing, but it lost, and that result opened the floodgate for advisers to recommend that football stars set up their own companies.

The following correction was printed in the Observer's For the record column, Sunday June 16 2002

We said football agent Jerome Anderson sat on the board of a promotional company owned by England goalkeeper David Seaman. In fact Anderson resigned from the company, David Seaman Promotions Ltd, in 1993.